Climate change is being blamed for the severe thunderstorms, earthquakes, extensive flooding and heatwaves that have led to the global insurance industry already suffering £39billion ($50bn) in losses in 2023.
Heading into 2023, Deloitte, warned climate change risk was a pressing issue for insurance regulation with insurers’ and reinsurers’ rates exacerbated by inflation and the climate crisis. That has proved to be a correct assumption as a series of catastrophes have hit the planet.
According to a study by reinsurance group Swiss Re, as well as climate change leading to more extreme weather events, first-half losses were driven by the expansion of urban areas and the rising cost of insuring them.
Swiss Re say the current wild fires in Europe, North Africa, Canada and Hawaii are fuelling concerns that significant weather-related losses will continue into the second half of the year.
Jérôme Jean Haegeli, the reinsurer’s chief economist, explained: “The effects of climate change can already be seen in certain perils like heatwaves, droughts, floods and extreme precipitation.”
Haegeli, said that “protective measures” needed to be taken for insurance to remain affordable for properties that were being built in at-risk areas.
More than two thirds of the losses were due to convective storms which delivered heavy rain, strong winds and sharp temperature changes. They were “one of the dominant global drivers” of insurance claims, reported Swiss Re.
Those storms were responsible for $35bn in losses in the six months to the end of June compared with an annual average of $18bn over the past decade. Floods in New Zealand and Europe also contributed to the $50bn total.
Those losses deepened concerns over the insurance industry’s ability to address natural catastrophes with experts viewing annual claims exceeding $100bn seen as a “new normal” for the sector.
In response, reinsurers have demanded much higher prices for cover with reports from America suggesting natural catastrophe reinsurance prices in that region were up 43 per cent.
Swiss Re’s chief executive Christian Mumenthaler told the Financial Times: “We are part of a system that needs to be economically viable, and if society decides to do certain things that lead to climate change, this needs to be priced,” said at the publication of its half-year results last week. It increased prices for property and catastrophe reinsurance by a fifth at the July renewals. It is our obligation to give pricing signals back to society through the primary insurance carriers.”
Economic losses from natural catastrophes, including those not insured, totalled $120bn for the first half of 2023, with February’s earthquake in Turkey and Syria the single costliest disaster estimated at $5.3bn, according to Swiss Re. That total was more than 40 per cent higher than the average over the past decade, and close to the $123bn in the first half of last year.
Mark Dutton, director at W Denis, said: “Conventional insurance is not always suitable to deal with climate issues as there has to be physical loss or damage caused by a specified peril, e.g. fire or flood. However, extreme weather conditions can cause non-damage interruption to businesses“. Non-conventional insurance is available from W Denis to guard against extreme conditions of weather, linked to pre-determined temperatures (hot or cold) or excessive rainfall or drought. “Such parametric insurance – a non-traditional insurance product that offers pre-specified pay-outs based upon a trigger event – should be on the agenda for risk managers to routinely review as part of their exposure management.”
W Denis are one of the largest independent insurance brokers in the UK and arrange competitive insurance solutions. To discuss this further with a broker at W Denis, please make arrangements with Daniel Moss at email@example.com or on 0044 (0)113 2439812.