Best’s Commentary: Secondary Perils Taking an Increasingly Larger Share of U.S. Catastrophe Losses
OLDWICK, N.J.--(BUSINESS WIRE)--
Secondary peril events are becoming more impactful and generating an increasingly larger amount of insured losses, affecting the bottom lines of personal and commercial lines property underwriters, according to an AM Best commentary.
A new Best’s Commentary, titled, “Secondary Perils Increasingly Responsible for Largest U.S. Catastrophes,” notes that although the trends of more frequent and harmful catastrophes are a global issue, the United States continues to suffer many of the most intense and most impactful natural disasters in terms of total damages and insured losses. Additionally, demographic shifts and population growth in coastal or other areas that have proven to be catastrophe-prone have elevated the magnitude of economic and insured losses. “As we have seen with population growth in wildfire-exposed areas in California and other western states - including the recent fires in Colorado –higher economic and insured losses are occurring despite natural catastrophes of lesser intensity,” said David Blades, associate director, industry research and analytics, AM Best.
According to the commentary, early estimates of 2021 losses from natural catastrophes are higher than $105 billion, which would make it the fourth-highest annual total since 1970. Over the last 40 years, a clear pattern of more frequent, significant natural catastrophe events has emerged, with the trend seemingly exacerbated in the last decade. Insurance companies with exposures to these secondary peril risks such as wildfires, tornadoes and severe thunderstorms will face heightened enterprise risk management concerns.
“The fact remains that secondary perils have not been modeled to the same extent as primary perils, although this modeling is evolving, and insurers are taking actions to address exposures to these risks through underwriting and pricing actions,” said John Andre, managing director, AM Best.
In the near term, insurers could see higher insured losses from inflation that increases the value of exposed property, as well as continued demographic shifts to higher-risk geographies and aging building stock. The impact of these trends also is reflected in reinsurance pricing on primary companies, especially in loss-affected areas.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.