Insurance Industry Faces Average Annual Natural Catastrophe Losses of $133B, A New High According to Verisk Report
September 08 2023 - 4:12AM
Insurance Industry Faces Average Annual Natural Catastrophe Losses
of $133B, A New High According to Verisk Report
The global modeled insured average annual loss from natural
catastrophes is $133 billion, a new high captured in the latest
analysis using Verisk’s extreme event solutions models. Not only
should the insurance industry be prepared to experience total
insured losses from natural catastrophes well in excess of $100
billion every year, but annual losses greater than $200 billion are
also plausible. These values are up significantly over the decade,
according to the 2023 Global Modeled Catastrophe Losses Report
published by Verisk (Nasdaq: VRSK).
“The growth in exposure values, driven primarily by continued
construction in high-hazard areas, and rising replacement costs -
largely due to inflation - are the most significant factors
responsible for increasing catastrophe losses,” said Bill Churney,
president of Verisk extreme event solutions. “The other significant
factor is the impact of climate change, which is often cited as the
primary reason for the increase in losses. But, while this plays a
role, year-over-year growth of exposure and rising replacement
values have a far greater short-term impact.”
No longer just hurricanes and earthquakes, thunderstorms
responsible for 70 percent of insured losses
Losses from the hazards beyond the traditional peak perils of
hurricanes and earthquakes, including flood, severe thunderstorm,
and wildfire, now account for a much larger proportion of the
overall annual losses, due to the combination of more frequent
events and more valuable properties at risk.
Severe thunderstorms have been responsible for a growing
proportion of the losses over the last five years and can no longer
be considered a “secondary peril”. So far in 2023, severe
thunderstorms have accounted for more than 70 percent of insured
losses with eight multi-billion-dollar events and according to this
year’s report, the contribution to the Global Average Annual Loss
(AAL) insured from severe thunderstorms globally is nearly 40
percent. U.S. severe thunderstorms are the majority of these
losses, and alone make up 21 percent of the total global AAL.
Economic losses could exceed $400 billion, highlighting
a global protection gap
Verisk has determined that the global insured losses only make
up approximately a third of global economic losses. The company
estimates that annual economic losses could exceed $400 billion, a
staggering figure that highlights the insurance protection gap that
exists around the world.
The sizable difference between insured and economic losses—the
protection gap—represents the cost of catastrophes to society. On a
regional basis, the percentage of economic loss from natural
disasters that is insured varies considerably. In North America,
for example, about 51 percent of the economic loss from natural
disasters is insured, while in Asia, insured losses account for
only about 12 percent of economic losses, respectively, reflecting
the very low insurance penetration in these regions.
The Verisk AAL is generally the sum of losses that can be
expected, on average, every year. The global exceedance probability
curve generated by Verisk’s suite of models provides probabilities
on many different levels of loss, with significantly higher losses
expected to occur with relatively high frequencies. According to
the year’s report, Verisk estimates the global insured 1 percent,
or 100-year loss is $370B. With this information, companies can
prepare for large loss years and truly own their risk with
confidence so that they can help weather these challenging years
without risking their solvency.
Churney continued, “Probabilistic catastrophe modeling remains
the best approach for understanding risk and (re)insurers can use
these models, with current exposure information, to put recent
losses in perspective, while accounting for the impacts of
continued exposure growth, climate change, and the increased role
of perils beyond tropical cyclones and earthquakes.”
Download the 2023 Global Modeled Catastrophe Losses report
here.
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About Verisk Verisk (Nasdaq: VRSK) is a leading
strategic data analytics and technology partner to the global
insurance industry. It empowers clients to strengthen operating
efficiency, improve underwriting and claims outcomes, combat fraud
and make informed decisions about global risks, including climate
change, extreme events, ESG and political issues. Through advanced
data analytics, software, scientific research and deep industry
knowledge, Verisk helps build global resilience for individuals,
communities and businesses. With teams across more than 20
countries, Verisk consistently earns certification by Great
Place to Work and fosters an inclusive culture where
all team members feel they belong. For more,
visit Verisk.com and the Verisk Newsroom.
- 2023 Global Protection Gap Map
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