Insurance industry should expect average annual cat losses of $151bn: Verisk

A combination of rapid exposure growth and inflationary pressures means that insurers should now be expecting average annual losses (AAL) from global natural catastrophes to reach a new high of $151 billion, according to a new study from Verisk Extreme Event Solutions.

This figure, which is compiled through the firm’s industry exposure database, is higher than last year’s, which came in at $133 billion.

Importantly, Verisk’s AAL projections for both 2023 and 2024 are notably higher than the average industry natural catastrophe losses of $106 billion over the past five years.

Moreover, average exposure growth is expected to be 7.2 percent, which includes growth in property replacement values from new construction and inflation across modeled countries.

Rob Newbold, president of Verisk Extreme Event Solutions, commented: “While actual annual insured losses over the past five years have been high, averaging $106 billion, they should not be seen as outliers. Our models show the insurance industry should be prepared to experience total annual insured losses from natural catastrophes of $151 billion on average, and well more than that in large loss years. With this information, (re)insurers can prepare for large loss years and truly own their risk with confidence, so they can be better positioned to manage these challenging years without risking their solvency.”

As well as rapid urban expansion and exposure growth, Verisk also attributed the rise in AAL towards a number of factors, such as an increasing frequency of events coupled with economic and social inflation, along with the impacts of climate change and variability.

According to the study, climate change accounts for approximately 1% of the annual increase in losses, with exposure
growth and inflation named as the main contributors.

However, Verisk explained that its influence is expected to become more significant over the next few decades.

Dr. Jay Guin, executive vice president and chief research officer for Verisk Extreme Event Solutions, said: “Climate change affects all atmospheric perils, but currently only accounts for approximately one percent of the annual increase in losses. Nonetheless, its influence is expected to become more significant over the next few decades. This is a signal that the insurance industry needs to be proactive and utilize advanced, forward-looking models to better estimate risk and guide internal decision-making.”

Furthermore, the study highlights that exposure growth varies across regions. Over the past five years, Asia saw the biggest increase, up 8.2 percent, with Europe seeing the second largest, up 7.1%, with Latin America and Oceania being the slowest at 6.7 percent.

Verisk also added, that in the United States, residential reconstruction costs have grown 7.4% per year over the past five years, however as inflation has slowed, reconstruction costs increased 3.8% in the past year.

Lastly, the study showcases that North America continues to represent the largest exposure for the industry, accounting for close to $97 billion of the latest AAL figure.

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