Data deficiencies are to blame for the loss of European cats

The loss of Nat-cat will be a concern for those heading to Monte Carlo September Rendez-Vous and cedants must ensure they are working with the latest models and data or face volatile reinsurance prices.

In March Insurance Insider has revealed that Italian carrier Unipol has been forced back to the negotiating table by its reinsurers after it offered a significant increase in its Italian hail loss figure six months after the event and very soon after the program renewal date.

Continued inaccuracy and delays in loss reporting can only breed distrust in the reinsurance relationship and lead to greater price volatility, and this was an extreme example of reinsurers wearing out their patience.

Italian impact

The dramatic hailstorms that hit several regions of northern Italy last year highlighted the potential for loss in areas where this has not been a historical trend.

As this publication revealed, industry loss estimates for the July 2022 event jumped from an initial $2.2 billion immediately afterward to more than $3 billion by November and north of $5 billion until early 2023.

Several factors led to the late and erratic reporting of Italian hail loss—some localized and specific to this event, and others more systemic.

For this loss, the sources noted that the hail storms struck during a traditional holiday period, resulting in a delay in initial damage reporting as policyholders had time to discover damage.

The relatively wide geographic spread of the event also put a strain on the supply of loss adjusters available on the ground in this case.

Systemic factors

However, there are other more systematic factors that the Italian loss shares with other recent and similarly growing European losses.

Sources said there was an over-reliance on outdated data in Europe, where forecasters had not recently experienced the frequency and severity of weather events seen elsewhere and therefore faced less urgency when it came to updating their assumptions. . In Italy, for example, hail the size of footballs was seen, leading to increased total engine losses.

In addition, widespread understatement of insured values, rising repair costs in Europe and urbanization all increased losses.

In some cases, insurers’ first cost estimates were only as good as the modeling agencies they used, and with different agencies releasing different estimates at different times and some only covering limited types of events, this can be a challenge .

Swiss Re warned in June that the initial provision must take into account actual risk exposure and be less biased by historical data and a slow adjustment process.

He explained that this involves keeping exposure information up-to-date at the point of primary underwriting, including valuations that represent true replacements and timely capture of new investment by homeowners.

Underestimations around the severity of weather events are not limited to hail or confined to a single region. The figures show that the same was true for events in Europe, including the German Storm Bernd flooding in 2021, the hail event in France in 2022 and the Turkey/Syria earthquake last year, and is also having an impact on more localized events small.