Insurers poorly prepared for hurricane season
Insurers seem poorly prepared for the increased loss frequency and intensity wrought by flooding and climate change as this year's North Atlantic hurricane season approaches, with pricing and risk appetite appearing badly aligned.
That is the warning in a new insurance sector report from Bloomberg Intelligence (BI). It pointed out that Munich Re and Swiss Re lead insurers who've now had three years in a row of insured losses over $100 billion.
Though last year had fewer storms than 2021, notes BI, significant economic damage was inflicted. Suggesting that something has changed for the worse, the 2022 Atlantic hurricane season consisted of 14 named storms – a near-average out turn – following 2021 which was the fifth straight year of new highs. The 2021 season ranked third in named storms since records began. The Eastern Pacific hurricane season keeps slightly different dates (May 30 to end-November) and NOAA forecasts for 2022 were exceeded.
Kevin Ryan, senior industry analyst – Insurance, Bloomberg Intelligence, said: “Hurricane Ian destroyed at least 2.3 million homes in Florida. However, most of the damage was from storm surges and heavy rain, with less than 20% of Florida homeowners insured against flooding. The economic loss will likely be much higher than the insured loss, at $95 billion. The scale of Hurricane Ian's losses, particularly in Florida, will likely mean insured losses will drift higher as inflation and litigation add to the toll. Ian is the second most-costly hurricane after 2005's Katrina, which cost insurers $99 billion on an inflation-adjusted basis.”
Ryan added: “Insurance rates don't appear to adequately reflect the threat of flooding as climate change brings more-intense rain events. Aon had 2022 insured natural-catastrophe losses of $132 billion, 57% more than the average since 2000. The biggest losses are getting larger, with many scientists blaming greater precipitation. Simply applying a multiple to historical large losses is likely to result in poor loss forecasts as more real estate is developed. However, it demonstrates potential problems.
“While 2022 only saw average global catastrophe losses, the Australian floods in February and March caused a record $4 billion of insured losses for the local insurers. Insured natural-catastrophe losses rose quickly in 2021 – the fourth most-costly year since 1970, according to Swiss Re; 2020 was the fifth costliest.”
Insured natural-catastrophe losses in 2022 were the fourth highest since records began (2021: third highest) and the third year in a row with over $100 billion insured losses. European floods in July saw a record-high insured loss of $13 billion, according to Aon, notes BI. Severe weather was also responsible for most of the big claims in 2022 – insured losses were above the 21st century normal.
BI also noted that, on average, flood losses were the third most-costly source of insurance claims over the past 20 years, after cyclones and severe weather. Catastrophic flood-loss events were the most-numerous peril globally in 2022. Insured losses from natural disasters reached $132 billion, with the US accounting for 75% of this, according to Aon in 2022, notes BI.
Ryan added: “Though 2022 was one of the 10 lowest years for deaths from natural catastrophes since 1950, beyond North America and Europe, flooding is a major killer among natural catastrophes. It representing 23% of deaths in 2021, 43% of deaths in 2020, 40% in 2019 and 30% in 2018. In 2017 – the most-expensive year on record for weather events – floods accounted for a massive 60%. Fatalities could be even higher should the severity of flooding increase in Europe and North America, as some scientists forecast.”
