Average annual losses from catastrophes to surpass $120B globally
Growing replacement costs and the frequency of severe weather are driving up the average annual total, according to Verisk.
On an average annual basis, insured losses stemming from extreme weather events are expected to reach around $123 billion globally, according to Verisk’s 2022 Global Modeled Catastrophe Losses report. During the past 10 years, the annual average in actual losses was $74 billion.
The biggest drivers of the growth in catastrophe losses during recent years have been an increase in exposure values and replacement costs, according to Bill Churney, president of Verisk Extreme Event Solutions.
“Both are represented by continued construction in high-hazard areas as well as high levels of inflation that are driving up repair and rebuild costs,” Churney said in a release. “For this reason, it’s important for insurers to regularly reassess their exposures, particularly in the most vulnerable urban and coastal areas. Updating the property replacement values used in catastrophe modeling and other processes helps to ensure a more informed view of risk.”
According to Verisk, the growth in the number and value of exposed properties is having a bigger impact on the value of catastrophe losses than climate change.
However, Verisk did report climate change is helping to drive up catastrophe losses. For perils such as wildfires, floods, droughts and sea level rise, the effects are clearer and can be directly tied to changes in temperature and hydrological cycles.
Further, the current five-year actual loss period comes after a 10-year period that saw a “hurricane drought” in the U.S. Although there have been several hurricanes in the U.S. since 2017, Verisk reported there has not been a single, large-scale event that exceeded $50 billion.
While no single event surpassed $50 billion, secondary perils, such as wildfires and severe storms, have been accounting for more losses. Verisk reports that severe thunderstorms, for example, have been increasingly contributing to global average losses during the past five years. Thunderstorms are now the largest contributing peril to global modeled average annual losses.
“Accounting for the losses from these perils should be standard practice for reinsurers, especially as they account for a larger proportion of the overall annual losses, due to the combination of more frequent events and more valuable properties at risk,” the report stated.
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