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Insured losses from natural catastrophes up sharply: Report

Posted On: Sep. 28, 2022 11:29 AM CST


Insured losses from natural catastrophes averaged $100 billion a year from 2017 through 2021, more than double the $47 billion average from 2012 through 2016, according to a report released Wednesday by data and analytics company Verisk Inc.

Based on Verisk models released in June 2022 and industry exposure data as of Dec. 31, 2021, the global modeled insured average annual loss for 2022 is $123 billion, up from $106 billion in 2021. Verisk said this means “the insurance industry should be prepared to experience total insured losses from natural catastrophes well in excess of $100 billion every year.” There has been an average of $74 billion in actual losses over the past 10 years.

Models estimate a more than 40% chance of experiencing a five-year average loss in excess of $100 billion and at least a 50% chance of experiencing a single year in the next decade with insured losses in excess of $200 billion. 

The increasing cost of catastrophes is driven by a mix of factors led by increasing exposure values and replacement costs, caused by such things as continued construction in high-hazard areas and high levels of inflation driving up repair and rebuild costs, Verisk said.

Climate change, although a contributing factor, was not the chief driver, as is often claimed, the company said.

“Although many public statements have been made attributing this increase primarily to climate change, our analysis indicates that a number of factors contribute to this doubling of the most recent five-year average loss over the previous five-year period,” Verisk said.

In declining order of importance, Verisk listed these factors as:  a rise in exposure values and replacement costs; the natural variability that comes from selecting any five-year sample of natural catastrophe experience; the effects of climate change on different atmospheric perils; and the impacts of man-made loss drivers, such as social inflation and legal and regulatory factors.

“The most significant factor driving increased catastrophe losses over the past few years is the rise in exposure values and replacement costs,” Bill Churney, president of Verisk Extreme Event Solutions, said in a statement with the report.

For this reason, he said, “it’s important for insurers to regularly reassess their exposures, particularly in the most vulnerable urban and coastal areas. Updating the property replacement values used in catastrophe modeling and other processes helps to ensure a more informed view of risk.”