Swiss Re Calls for PPP, citing USD 108 Billion in Nat Cat Losses in 2023

Swiss Re released its latest Sigma report today, finding that a record 142 Nat Cat events pushed insured losses to USD 108 billion in 2023, reaffirming the 5–7% annual growth trend in global insured natural catastrophe losses since 1994.

Swiss Re recorded 30 medium severity loss events that each caused USD 1–5 billion in losses - well above the 10-year annual average of 17 such events. Over the last 30 years, the number of medium-severity events has grown by 7.5% compared with 3.9% for all natural catastrophes. Severe convective storms (SCS) represented 70% of last year's medium severity loss event.

SCS includes a range of hazards including tornadic and straight-line winds, and large hailstones, led to a record USD 64 billion in global insured losses in 2023. The U.S. accounted for 85% of SCS related insured losses, while Europe had the fastest growth in SCS-related insured losses, exceeding USD 5 billion in each of the last three years. Hailstorms represent 50–80% of all SCS-driven insured losses, the largest contributor. Severe thunderstorms are now the second-largest loss-making peril, as climate change impacts collide with urbanisation and economic and population growth - and as certain new vulnerabilities like the wider adoption of rooftop solar take hold.

Considering the relative economic impact of Nat Cat losses, Swiss Re noted that from 1994 to 2023, inflation-adjusted insured losses from natural catastrophes averaged 5.9% per year, while global GDP grew by 2.7% - reflecting the reality that losses are escalating more than twice as fast as economic growth. Against this backdrop, Swiss Re warns that its models show insured losses could double within the next ten years as temperatures rise and extreme weather events become more frequent and severe.

"Even without a historic storm on the scale of Hurricane Ian, which hit Florida the year before, global natural catastrophe losses in 2023 were severe." said Jérôme Jean Haegeli, Swiss Re's Group Chief Economist. "This reconfirms the 30-year loss trend that's been driven by the accumulation of assets in regions vulnerable to natural catastrophes. In the future, however, we must consider something more: climate-related hazard intensification. Fiercer storms and bigger floods fuelled by a warming planet are due to contribute more to losses. This demonstrates how urgent the need for action is, especially when taking into account structurally higher inflation that has caused post-disaster costs to soar."

In light of these natural catastrophe trends, Swiss Re says its imperative to reduce the loss potential through risk-based premiums and adaptation measures like enforcing building codes, building flood protection barriers, and discouraging settlement in areas prone to natural perils. Additionally, the reinsurer is calling for collaboration with primary insurers, insurance associations and the public sector on shared data and risk mitigation.

"As weather hazards intensify due to climate change, risk assessment and insurance premiums need to keep up with the fast-evolving risk landscape," said Moses Ojeisekhoba, Swiss Re's CEO Global Clients & Solutions. "Looking ahead, we must focus on reducing the loss potential. 2023 was the hottest year on record, and the start to 2024 is following suit. Keeping property insurance sustainable and affordable requires a concerted effort by the private industry, the public sector and broader society – not just to mitigate climate risks, but to adapt to a world of more intense weather."

"There is bad news in the sense that climate change is already locked in, so we will have to expect higher losses," said Ivo Menzinger, Head EMEA, Public Sector Solutions at Swiss Re. "But there is also an element of good news. There have been previous studies by Swiss Re that suggest in various jurisdictions and locations, that up to 65% of these future losses can actually be averted cost effectively, which means that the benefit of the avoided damage in the future outweighs the investment that is required today."

Meinzinger also cautioned against renewed regulatory proposals that would mandate private insurers assume certain risks or limit risk-based pricing. "Essentially, everyone, all stakeholders, need to contribute their part to fund climate adaptation to maintain insurability - from the government, to the insurance industry, to the insured," said Menzinger. “These conversations about introducing new insurance schemes are not being held in isolation from a conversation about how do we reduce risk, how do we prevent, and how do we mitigate the impact of things that we cannot avoid. My main focus is not to tell governments what they should do or should not. What I really want to talk about is the contribution the insurance and reinsurance industry can bring to the table," added Menzinger. “The reinsurance industry really is a gearbox and has a gearbox function in all of this. If you look at infrastructure investment, our industry plays a key role in enabling investments in protective infrastructure through taking out some of the risks. If you talk about preparedness and responsiveness, there is a role for the industry to incentivise risk reduction through adequate pricing; and there is a big role for us to advise governments and individual policyholders about the risks that they face.”

Meinzinger added that one area where governments and insurers can work together is advancing climate adaptation standards. He cited building codes and zoning laws that, together with insurance underwriting, reversed the course on urban fires that endangered entire cities 150 years ago. "I would argue that urban fires are potentially what climate change is now - the challenge of our generation. It took a while, but ultimately the economic costs of the way that buildings were built became so high that the insurance industry and governments teamed up."

Source: Swiss Re, https://www.swissre.com/press-release/New-record-of-142-natural-catastrophes-accumulates-to-USD-108-billion-insured-losses-in-2023-finds-Swiss-Re-Institute/a2512914-6d3a-492e-a190-aac37feca15b | Reinsurance News, https://www.reinsurancene.ws/public-private-partnerships-play-a-key-role-in-climate-adaptation-swiss-res-menzinger/