Insured losses from natural disasters averaged $100 billion a year from 2017 to 2021, more than double the $47 billion average from 2012 to 2016, according to a report released Wednesday by data and analytics firm Verisk Inc.
Based on Verisk models released in June 2022 and industry exposure data as of December 31, 2021, the global modeled insured average annual loss for 2022 is estimated to be $123 billion, up from $106 billion in 2021. Verisk said this means “the insurance industry should be prepared to experience total insured losses from natural disasters exceeding $100 billion each year.” There has been an average of $74 billion in actual losses over the past 10 years.
Models estimate a greater than 40% chance of experiencing a five-year average loss above $100 billion and at least a 50% chance of experiencing a single year in the next decade with insured losses above $200 billion.
The rising costs of disasters are being driven by a mix of factors led by rising exposure values and replacement costs, caused by such things as continued construction in high-risk areas and high levels of inflation driving up repair and rebuilding costs, Verisk said.
Climate change, while a contributing factor, was not the main driver, as is often claimed, the company said.
“While many public statements have been made attributing this increase primarily to climate change, our analysis indicates that a number of factors are contributing to this doubling of the most recent five-year average loss over the previous five-year period,” Verisk said.
In descending order of weight, Verisk listed these factors as: an increase in exposure values and replacement costs; the natural variation that comes from selecting a five-year sample of natural disaster experience; the effects of climate change on various atmospheric hazards; and the effects of human-caused loss factors, such as social inflation and legal and regulatory factors.
“The most important factor driving increased catastrophe losses in recent years is the increase in exposure values and replacement costs,” Bill Churney, president of Verisk Extreme Event Solutions, said in a statement accompanying the report.
For this reason, he said, “it is important for insurers to regularly reassess their exposures, particularly in the most vulnerable urban and coastal areas. Updating the replacement values of properties used in catastrophe modeling and other processes helps ensure a more informed view of risk.”