Global insured losses out of natural catastrophes in 2020 were USD 89 billion, making it the fifth-costliest year on sigma records since 1970.
According to Swiss Re's Sigma report, released on Tuesday, natural catastrophes in 2020 caused global economic losses of USD 190 billion of which the insurance industry covered USD 81 billion.
Swiss Re Institute's sigma on natural catastrophes in 2020 has put the spotlight on severe weather events known as secondary perils, such as thunderstorms, local flooding and wildfires. These perils are increasingly and regularly responsible for the majority of natural-catastrophe-related insurance losses, driven by factors like urbanisation and climate change.
The key insurance takeaways of Swiss Re's annual catastrophe report, are:
-Secondary peril events accounted for 71 per cent of natural catastrophe insured losses, resulting mostly from severe convective storms and wildfires in the US and Australia.
-Recent years have seen a rise in losses from secondary perils. The same risk trends affect primary perils, suggesting that future peak loss scenarios for both hurricane season and multiple secondary peril events could be as high as USD 250–300 billion, mainly due to population growth, value accumulation in highly exposed areas and climate change effects, said the report..
-In GDP-normalised terms, losses rose 1.6% between 1970-2020 on a 10-year moving average basis. This is indicative of the larger scale of losses that could result if an event of the past were to occur today, given the accumulation of socio-economic value and other dynamics such as changing weather conditions in the intervening years.
-North Atlantic hurricane season was a lucky escape. A record number of 30 named storms caused moderate insured losses of USD 21 billion; 12 US storms made landfall in areas of low population density and exposure – if storm occurrence patterns had been less favourable, insured losses would have been much higher.
Jérôme Haegeli, Swiss Re Group chief economist said, "2020 will be remembered for the global health and economic crisis triggered by the COVID-19 pandemic. But while COVID-19 was a stress test for society and the economy, it has an expiry date – climate change does not. In fact, climate change is already becoming visible in more frequent occurrences of secondary perils, such as flash floods, droughts and forest fires.''
“Natural disaster risks are increasing and climate change will significantly exacerbate them. This underlines the urgency to better protect our communities against catastrophic losses while dramatically reducing carbon emissions. Unless mitigating measures are taken, such as greening the global economic recovery, the cost to society will increase in the future,'' he added
In many regions of the world, the need to close protection gaps persists for both primary and secondary peril exposures. Re/insurers can do more to help people, businesses and societies become more resilient, suggested Haegeli.
Martin Bertogg, Swiss Re's Head of Cat Perils: "We have seen an increase in losses from secondary perils in recent years, such as severe convective storms, floods and wildfires. The same upward loss trend for primary perils and 2020 serves as another reminder of their peak loss potential. The two peril types are affected by the same loss-driving risk trends, including population growth, increasing property values in exposed regions and the effects of climate change. This suggests that with climate change, future peak loss scenarios could also increase significantly.
Recent years have seen a rise in losses from secondary perils. The same risk trends affect primary perils, suggesting that future peak loss scenarios for both hurricane season and multiple secondary peril events could be as high as USD 250–300 billion, mainly due to population growth, value accumulation in highly exposed areas and climate change effects, cautiomned the report.
Out of USD 81 billion global insured losses from natural catastrophes in 2020, man-made disasters resulted in USD 8 billion insured losses.
Secondary peril events accounted for more than 70% of the natural catastrophe insured losses, resulting mostly from severe convective storms (SCS) and wildfires.In the last 10 years, SCS have contributed more than half of global insured losses from secondary perils. Given the high losses, this sigma includes a deep-dive on SCS specifically.
However, 2020 also serves as a reminder of the peak-loss potential from primary perils. Notably, last year's North Atlantic hurricane season was very active: it is just chance the storms hit areas of low population density/activity and/or low insurance penetration.
Further, history indicates a similar trend of rising losses from primary perils, suggesting that future peak-loss scenarios could also grow significantly.
For example, the report estimates that in a year of both a peak-loss inducing hurricane season and multiple secondary peril events, combined annual insured losses could be as high as USD 250-300 billion.
The underlying factors influencing primary and secondary peril event outcomes are the same, including changing socio-economic developments and climate-change effects. Primary perils are well-monitored by the insurance industry, but secondary-peril risks less so. Risk assessment efforts need to rebalance to make secondary perils a priority.
2020 will be remembered for the global health and economic crisis triggered by COVID-19.
Against the backdrop of the disruption and upheaval caused by the pandemic, millions of people also experienced severe weather events. In inflationadjusted terms, global economic losses from natural and man-made catastrophes were USD 202 billion last year, up from USD 150 billion in 2019.
The US was hardest hit, with large stretches of the East Coast pummelled by hurricanes, wildfires in the west, and the Midwest struck by a record number of convective storms.
Australia suffered too, from unprecedented drought, wildfire and storms. Asia suffered deadly and catastrophic floods from monsoon rains
At 2020 prices, the year ranks ninth highest on sigma records in terms of economic losses caused by natural catastrophes in any one year. After normalising for GDPgrowth effects, last year’s economic losses rank 18th highest on record.