Total annual global insurance losses from natural disasters exceeding $100 billion may be less newsworthy than in the past. According to Verisk’s data and analytics models, the industry could expect annual losses of at least $100 billion.
The average loss over the last five years has been $101 billion, up from $70 billion over the previous five years, 2013-2017. Verisk’s models now estimate that the average yearly damage from worldwide natural disasters is $133 billion, a new high caused by causes other than weather.
“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,” Bill Churney, president of Verisk extreme event solutions, said in a statement. “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.”
In addition, Verisk stated that its global average annual losses should be regarded as a baseline. With the frequency of much bigger losses increasing, Verisk believes the industry should brace itself for a year with losses exceeding $200 billion.
Verisk’s simulations also reveal a substantial gap in insurance coverage, with annual global economic losses exceeding $400 billion.
“On a regional basis, the percentage of economic loss from natural disasters that is insured varies considerably,” Verisk said in its report, 2023 Global Modeled Catastrophe Losses. “In North America, for example, about 51% of the economic loss from natural disasters is insured, while in Asia, insured losses account for only about 12% of economic losses, respectively, reflecting the very low insurance penetration in these regions.”
Verisk stated that it does not differentiate between “primary” and “secondary” perils because all disasters contribute to loss, “whether they are a single major event, an aggregation of smaller ones, or a combination of the two.” So far in 2023, severe thunderstorms, sometimes referred to as a secondary danger, have contributed for 70% of insured losses from eight multi-billion dollar catastrophes, according to Verisk.
According to Verisk, climate change is a “significant factor” in the growth in catastrophe losses, affecting all dangers, and “perils like floods, droughts, wildfire, and sea level rise (and thus storm surge) are becoming more severe, and observational data corroborates the science.” The impact of climate change on other risks is more difficult to estimate, but Verisk stated that it is attempting to combine research with historical trends to guarantee that the models accurately reflect climate risk.