Insurers face $151 billion in annual losses from natural disasters, report predicts

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The global insurance industry should expect annual losses of $151 billion from natural disasters and much more in bad years, according to a new forecast that highlights the challenges of climate change and urban sprawl.

The industry is struggling to cope with an increase in property claims due to natural disasters, which has increased the cost of coverage and prompted insurers to pull out of some high-risk areas.

Verisk, one of the big risk modeling firms whose models are used in the insurance and reinsurance sector, said on Tuesday that the average expected loss for the sector was at a new high.

Rob Newbold, president at Verisk, said the past four difficult years for the industry “should not be viewed as outliers.”

“Our models show that the insurance industry should be prepared to experience total annual insured losses from natural catastrophes of $151 billion, on average, and much more than in high-loss years,” he added. The figure includes crop losses; without these, the forecast is $119 billion.

Newbold said Verisk hopes the industry can use the forecast to “prepare for big years of losses and . . . to be better positioned to manage these challenging years without risking their solvency”.

The group said the increase in losses had several causes, highlighting the impact of climate change, increasing exposure as populations grow in at-risk areas and inflation in reconstruction costs.

Verisk said that “detecting (the) signal” of climate change in increasing global losses was challenging, in part because of other factors in the data, such as changing inflation and the natural variability of climate events.

It said climate change was currently the minor factor in increasing losses, but expected that impact to become more significant over the next few decades.

“Climate change affects all atmospheric hazards, including tropical cyclones, but its impact is more immediate and pronounced on wildfires, floods and severe storms,” ​​Verisk said in its report.

“The effects on fires and floods are relatively well understood, while the relationship with severe storms is less scientifically established.”

Verisk is working with scientists to better understand what was behind a record year for strong storms in the US in 2023.

Risk modelers and insurers have invested heavily in researching “secondary” hazards, such as storms and wildfires, which do not have the impact of a major hurricane or earthquake, but where the combined impact becomes a significant challenge for the sector.