Catastrophe losses climb to $151 billion – Verisk

Catastrophe losses climb to $151 billion – Verisk | Insurance Business New Zealand

Catastrophe & Flood

Catastrophe losses climb to $151 billion – Verisk

Growing property values and climate change are key drivers

Catastrophe & Flood

By
Kenneth Araullo

Verisk reports that the average annual loss (AAL) from global natural catastrophes has reached $151 billion, with non-crop losses accounting for $119 billion.

Additionally, average exposure growth has been 7.2%, driven by increases in property replacement values due to new construction and inflation across modeled countries over the past five years.

These findings are detailed in Verisk’s 2024 Global Modeled Catastrophe Losses Report, produced by its Extreme Event Solutions business.

Verisk releases this report annually to aid the industry in addressing the challenges posed by recent global catastrophe losses. The Verisk AAL indicates the scale of potential losses that can be expected, on average, in any given year.

The increase in global insured natural catastrophe losses is attributed to several factors, including rapid urban expansion, climate change, and the increasing frequency of events combined with economic and social inflation.

Urban expansion and exposure growth are identified as primary drivers of modeled losses. Currently, more than half of the world’s population resides in urban areas, contributing to rising exposure levels.

In fast-growing, developing countries, new cities continue to emerge and expand, while in developed countries, urbanization also drives increased exposure. Population shifts and urbanization contribute to varying exposure growth within different countries.

Verisk’s report indicates that the modeled AAL and insured losses are expected to rise over time due to increased property exposure in hazardous areas. Global inflation in recent years has significantly increased property values, which in turn has driven up insured losses.

The role of exposure in the case of rising losses

Although inflation is returning to more typical levels worldwide, exposure growth is likely to continue contributing to rising losses.

While climate change is anticipated to increase the frequency and severity of extreme weather events, its impact on global losses is difficult to detect due to natural variability, exposure changes, and inflation.

Dr Jay Guin, executive vice president and chief research officer for Verisk Extreme Event Solutions, noted that climate change currently accounts for about 1% of the annual increase in losses, but its influence is expected to grow in the coming decades. This highlights the need for the insurance industry to use advanced models to better estimate risk and guide decision-making.

Understanding the contribution of climate variability to global insured AAL is crucial for accurate risk modeling and management. Verisk’s models offer insights into this variability, assisting insurers in preparing for future losses and managing risk more effectively.

In 2023, insured losses were largely driven by severe thunderstorms rather than hurricanes or earthquakes. The United States experienced a record-setting thunderstorm season, with losses exceeding $57 billion. Verisk reports that the adjusted AAL for U.S. severe thunderstorms over the past five years is approximately $39 billion, compared to $23 billion in the previous five-year period.

Rob Newbold (pictured above), president of Verisk Extreme Event Solutions, highlighted that while insured losses have averaged $106 billion annually over the past five years, these figures are not outliers.

Newbold stated that Verisk’s models indicate the insurance industry should expect average annual insured losses from natural catastrophes of $151 billion, with the potential for even higher losses in particularly severe years.

What are your thoughts on this story? Please feel free to share your comments below.