Verisk Extreme Event Solutions, one of the global risk underwriting research firms, has projected that a combination of rapid exposure growth and inflationary pressures could raise average annual losses (AAL) from global natural catastrophes to a new high of $151 billion this year.
The latest study conducted by the firm, based on news report from Reinsurance News, an online industry-focused medium, indicated that this figure, which is compiled through the firm’s industry exposure database, is higher than last year’s losses which stood at $133 billion.
The firm’s AAL projections for both 2023 and 2024 are notably higher than the average industry natural catastrophe losses of $106 billion over the past five years.
Moreover, average exposure growth is expected to be 7.2 percent, which includes growth in property replacement values from new construction and inflation across modeled countries.
Commenting on the natural catastrophes outlook, President of Verisk Extreme Event Solutions, Rob Newbold, said: “While actual annual insured losses over the past five years have been high, averaging $106 billion, they should not be seen as outliers.
“Our models show the insurance industry should be prepared to experience total annual insured losses from natural catastrophes of $151 billion on average, and well more than that in large loss years. With this information, (re)insurers can prepare for large loss years and truly own their risk with confidence, so they can be better positioned to manage these challenging years without risking their solvency”, the insurer added.
On the rapid urban expansion and exposure growth, Verisk also attributed the rise in AAL to sundry factors, including an increasing frequency of events coupled with economic and social inflation, along with the impacts of climate change and variability.
According to the study, climate change accounts for approximately 1% of the annual increase in losses, with exposure growth and inflation named as the main contributors.
However, the firm explained that its influence was expected to become more significant over the next few decades.
Similarly, Executive Vice President and Chief Research Officer for Verisk Extreme Event Solutions, Dr. Jay Guin, further clarified: “Climate change affects all atmospheric perils, but currently only accounts for approximately one percent of the annual increase in losses. Nonetheless, its influence is expected to become more significant over the next few decades. This is a signal that the insurance industry needs to be proactive and utilize advanced, forward-looking models to better estimate risk and guide internal decision-making.”
In addition, the study highlighted that exposure growth varies across regions, indicating that over the past five years, Asia recorded the biggest increase, up 8.2 percent, with Europe coming second at 7.1%, and Latin America and Oceania being the slowest at 6.7 percent.
Also, Verisk reported that in the United States, residential reconstruction costs have grown 7.4% per year over the past five years, adding, however, that as inflation slows, reconstruction costs increased 3.8% in the past year.
Lastly, the study reflected that North America continued to represent the largest exposure for the industry, accounting for close to $97 billion of the latest AAL figure.
