LONDON – The insurance industry is grappling with a new kind of weather risk that is increasingly driving its biggest loss category.
While no single weather event caused more than US$10 billion (S$13.4 billion) in losses for insurers in 2023, there were 37 thunderstorms that each cost at least US$1 billion, according to a report by management consultancy firm Aon. That is more than ever before and way above the average of 14 such storms in a single year, the insurance broker said.
The development is forcing the industry to rethink some of its risk assumptions amid a clear uptick in the number of thunderstorms across Europe and the US. Severe so-called convective storms, which are characterised by heavy rain and intense winds, accounted for about US$70 billion of insured losses globally in 2023, Aon estimates. That is equivalent to 59 per cent of losses from all natural disasters, according to its report.
“The increase in severe convective storms surprised us,” Mr Michal Lorinc, head of catastrophe insight at Aon, said in an interview. “It means that companies need to evaluate their portfolios, and to look at future scenarios.”
A large chunk of 2023’s losses stemmed from “relentless” thunderstorm activity, according to Aon. That includes 25 severe convective storms, of which 21 occurred in the US. All but one of the global billion-dollar events were weather-related, Aon said in its report.
Others in the industry have made similar observations. Recently published research by Swiss Re Institute showed that global thunderstorm losses in 2023 were almost 90 per cent higher than the previous five-year average of US$32 billion, and more than double the previous 10-year average of US$27 billion.
Earlier in January, Munich Re’s chief climate scientist Ernst Rauch said insurers are having to rethink how to classify storms.
“We used to refer to regional thunderstorms as secondary perils because they only cause small or medium-sized damage on their own,” he said in an interview. “But as the number of thunderstorms increases, we have to think about a new classification.”
According to Ms Karen Clark, a pioneer in modelling catastrophe risk, there is growing market interest in so-called secondary perils. It is also a development that is creating opportunities for catastrophe bonds, says Ms Clark, co-founder of Boston-based Karen Clark & Co.
All told, global insurance losses in 2023 exceeded US$100 billion for the fourth year in a row, according to Aon. New Zealand, Italy, Greece, Slovenia and Croatia all recorded their costliest weather-related insurance events on record.
The level of unprotected risk also is considerable. Insurance covered only 31 per cent, or US$118 billion of the estimated US$380 billion of total losses for the year, according to Aon’s figures.
Extreme weather can undermine corporate physical infrastructure as well as supply chains. It also can threaten the health of workers who toil outdoors for industries such as construction, agriculture and real estate. In 2023, 24 countries and territories broke or tied their previous maximum temperature records, according to Aon. BLOOMBERG
