Natural disaster-related insured damages predicted to double in a decade
A study by the Swiss Re Institute forecasts a significant surge in insured damages from natural disasters, with an expected doubling over the next decade. The report's lead author, Jerome Jean Haegeli, Swiss Re's Chief Economist, cautions that this trend could lead to substantial financial implications for policyholders as insurance premiums will need to adjust to match the increasing risk. Despite a minor decrease from 2022 and 2021, insured losses surpassed $100 billion for the fourth year running in 2023.
Uninsured losses indicate larger economic impact
The study also uncovers that only around 40% of worldwide economic losses from natural disasters are covered by insurance. This implies that the total economic losses are considerably more than what is insured. In the past, large-scale hurricanes such as Harvey in 2017 or Katrina in 2005 have been instrumental in pushing global insured damages beyond the $100 billion threshold. However, recent years have witnessed an uptick in smaller incidents like severe thunderstorms causing substantial damage.
Record damages in 2023 due to thunderstorms and earthquakes
The most costly event of 2023 was the February earthquake in Turkey and Syria, which resulted in approximately 58,000 fatalities and insured damages around $6.2 billion. On the other hand, 18 thunderstorms each inflicted over $1 billion in damage, amassing a record $60 billion. The US bore the brunt of last year's damage due to its extensive insurance coverage and frequent thunderstorms.
Damage costs influenced by inflation, population growth, and solar energy
The report from Swiss Re emphasizes that inflation and population growth in areas prone to high risk, are key factors driving the increase in thunderstorm damage. Changes in behavior, such as the growing use of solar energy, also had an impact. The report pointed out that "Hail is by far the main loss-making culprit of SCS [Severe Convective Storms]," with older rooftops equipped with solar power systems being a primary target.
Anticipated increase in losses due to climate change and inflation
Swiss Re's analysis suggests that climate change accounted for only about one-eighth of the increase in damages, but anticipates its contribution to escalate. Considering factors like inflation, exposure, and increasing natural hazards, total insured losses are projected to grow 5% to 7% annually over the next decade. This forecast comes at a time when homeowners in the US are already struggling with rising insurance premiums.