Secondary peril events accounted for 71 percent of natural catastrophe insured losses in 2020, according to Sigma research conducted by the Swiss Re Institute.
In all, natural catastrophes caused global economic losses of $190 billion in 2020, of which only $81 billion was insured, the research found. Total global insured losses were $89 billion in 2020, making it the fifth-costliest year on record since 1970.
The impact of secondary perils came mostly from severe convective storms and wildfires in the US and Australia, the research said.
Recent years have seen a rise in losses from secondary perils, according to the Swiss Re Institute. The same risk trends have affected primary perils, suggesting that future peak loss scenarios for both hurricane season and multiple secondary peril events could be as high as $300 billion, it said.
Population growth, value accumulation in highly exposed areas and climate change are driving these trends, the research said.
A record number of 30 named storms caused moderate insured losses of $21 billion, with 12 US storms making landfall in areas of low population density and exposure. “If storm occurrence patterns had been less favourable, insured losses would have been much higher,” the research said.
Jérôme Haegeli, Swiss Re group chief economist, warned that climate change is exacerbating increasing natural disaster risk, and called for societies to take steps to mitigate their impact in the future.
"While COVID-19 was a stress test for society and the economy, it has an expiry date – climate change does not,” he said. “In fact, climate change is already becoming visible in more frequent occurrences of secondary perils, such as flash floods, droughts and forest fires.”
He added: “In many regions of the world, the need to close protection gaps persists for both primary and secondary peril exposures. Re/insurers can do more to help people, businesses and societies become more resilient."
Martin Bertogg, Swiss Re's head of cat perils, said: "We have seen an increase in losses from secondary perils in recent years, such as severe convective storms, floods and wildfires. The same upward loss trend for primary perils and 2020 serves as another reminder of their peak loss potential. The two peril types are affected by the same loss-driving risk trends, including population growth, increasing property values in exposed regions and the effects of climate change. This suggests that with climate change, future peak loss scenarios could also increase significantly.”
Bertogg argued that given the dynamic nature of risks, “re/insurers' risk models need to increasingly consider forward-looking risk trends, such as climate change, urbanisation and socio-economic inflation – rather than relying on historical data observations – when assessing the potential magnitude of losses."
Swiss Re Institute, Jérôme Haegeli, Martin Bertogg