Global insured losses from natural disasters are expected to rise annually by 5-7% relative to GDP, according to Swiss Re. Secondary perils now represent a larger share of global natural disaster losses than before.
The insurance industry faces major challenges as natural disaster losses grow faster than GDP. This affects insurance affordability and may increase protection gaps in many regions
Kera McDonald, Chief Underwriting Officer at Swiss Re Corporate Solutions
Swiss Re’s sigma report states: “In 2023, nearly 62% of total catastrophe losses were uninsured. Narrowing protection gaps requires reducing expected losses and increasing insurance coverage.
Reducing loss potential involves climate change mitigation, loss reduction, and prevention and adaptation actions to minimize exposure and vulnerability to hazards, both at societal and individual asset levels.”
Natural disasters make grid resilience even harder, according to Climate Change report. Hurricane Ian left 2.6 mn Floridians without power in 2022, and Hurricane Ida caused outages for 1 mn people in Louisiana in 2021. Winter Storm Elliott delivered insured losses of $5.4 bn in U.S. & Canada. Winter Storm Uri affected at least 5 mn people from Texas to North Dakota.
Extreme heat also damages power infrastructure, as seen in the 2021 Pacific Northwest heat dome, which melted power cables.
In 2024, Storm Ingunn caused transmission lines to fail in Norway, and flash floods in Sydney submerged substations.
McDonald noted, “Annually, insured losses regularly surpass $100 bn. In 2017, hurricanes Harvey, Irma, and Maria pushed losses above $100 bn, an unexpected new norm. Six of the seven years since have seen losses at or above this level, marking a significant change from previous years.”
Global insurance and reinsurance industry losses from natural catastrophes in the first half of 2024 reached at least $61 bn, coming in 25% higher than the first half decadal average on the back of the second costliest H1 on record for the US severe convective storm (SCS) peril, according to Gallagher Re.
Swiss Re projects a continued annual growth rate of 5-7% in natural catastrophe events.
Relative to GDP, global natural catastrophe losses have doubled in the past 30 years. At a 5-7% growth rate, they will double again in the next 10 years. This represents a significant shift our clients must address.
Although H1 2024 insured losses beat the decadal H1 average, total H1’24 economic losses were estimated at $128 bn by the broker, which is slightly lower than the decadal average of $133 bn.
The economic and insured loss totals suggest a global protection gap of $67 billion for the period, with roughly 48% of nat cat losses covered by insurance.
