Natural catastrophe insured loss jumps to record $133B

The annual average insured losses from natural catastrophes have soared to a staggering $133 billion, marking a new record high, and serving as a stark reminder of the escalating risks faced by insurers worldwide.

The numbers come from the latest findings in the 2023 Global Modeled Catastrophe Losses Report by Verisk, a data analytics and technology partner to the insurance industry.

Interestingly, while global climate change may factor in the surge of catastrophic losses, according to Bill Churney, president of Verisk’s extreme event solutions, most of the blame is attributed to two more mundane circumstances: the continued expansion of exposure values, driven by construction in high-hazard regions, and escalating replacement costs, largely fueled by inflation.

Churney noted that year-over-year growth in exposure and rising replacement values have a more immediate impact on these losses.

Beyond traditional natural disasters such as hurricanes and earthquakes, losses from other hazards like floods, severe thunderstorms, and wildfires now constitute a significant portion of annual losses. These events are occurring more frequently and often involve more valuable properties, amplifying the financial toll.

Severe thunderstorms, previously considered a "secondary peril," have become a major concern. In 2023 alone, severe thunderstorms have accounted for more than 70% of insured losses, with eight events exceeding billions of dollars. Globally, severe thunderstorms contribute to nearly 40 percent of the Global Average Annual Loss (AAL) insured. U.S. severe thunderstorms are the primary driver, accounting for 21 percent of the total global AAL.

Verisk's report also highlights a critical gap in insurance coverage, as global economic losses from natural disasters could surpass a staggering $400 billion. This difference between insured and economic losses underscores the existing protection gap, representing the cost borne by society overall.

Regionally, the level of insurance penetration varies significantly. In North America, about 51% of economic losses from natural disasters are insured. In contrast, Asia has a meager 12% coverage rate, underscoring the urgent need to bolster insurance coverage in these regions.

The Verisk Average Annual Loss (AAL), a reflection of expected yearly losses, estimates that the global insured 1%, or 100-year loss, amounts to a jaw-dropping $370 billion. Armed with this information, insurance companies can better prepare for major loss years, allowing them to manage their risk with confidence while safeguarding their financial stability, Verisk said.

Churney emphasized the continued importance of probabilistic catastrophe modeling in understanding and managing risk. He encouraged reinsurers to leverage these models, incorporating up-to-date exposure information to assess recent losses while accounting for the effects of ongoing exposure growth, climate change, and the increasing impact of hazards beyond tropical cyclones and earthquakes.

The Verisk report should serve as a wake-up call to the insurance industry, urging stakeholders to take decisive action in the face of mounting catastrophe losses and climate challenges.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at doug.bailey@innfeedback.com.

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