Weather risks appear on the insurance industry’s radar after a $70 billion hit

While no single weather event caused more than $10 billion in losses for insurers last year, there were 37 thunderstorms that cost at least $1 billion each, according to a report by Aon Plc. That is more than ever before and far above the average of fourteen such storms in one year, according to the insurance broker.

The development is forcing the industry to reconsider some of its risk assumptions, as the number of thunderstorms in Europe and the US has clearly increased. Severe so-called convective storms, characterized by heavy rainfall and intense winds, were responsible for about $70 billion in insured losses worldwide last year, Aon estimates. That equates to 59% of losses from all natural disasters, according to the report.

“The increase in severe convective storms has taken us by surprise,” Michal Lorinc, head of catastrophe insight at Aon, said in an interview. “It means companies need to evaluate their portfolios and look at future scenarios.”

A large part of last year’s losses were the result of “relentless” thunderstorms, according to Aon. This includes 25 severe convective storms, 21 of which are in the US. All but one of the global billion-dollar events were related to weather, Aon said in its report.

Others in the industry have made similar comments. Recently published research from the Swiss Re Institute shows that global thunderstorm losses in 2023 were almost 90% higher than the previous five-year average of $32 billion, and more than double the previous ten-year average of $27 billion.

And earlier this month, Munich Re’s chief climate scientist Ernst Rauch said insurers should reconsider how to classify storms.

“We used to call regional thunderstorms secondary hazards because they caused only small or medium damage on their own,” he said in an interview. “But as the number of thunderstorms increases, we need to think about a new classification.”

According to Karen Clark, a pioneer in the field of catastrophe risk modeling, there is growing market interest in so-called secondary hazards. It’s also a development that creates opportunities for catastrophe bonds, says Clark, co-founder of Boston-based Karen Clark & ​​Co.

All told, global insurance losses exceeded $100 billion last year for the fourth year in a row, Aon said. New Zealand, Italy, Greece, Slovenia and Croatia all recorded the most expensive weather-related insurance events on record.

The level of unprotected risk is also significant. Insurance covered just 31%, or $118 billion, of the estimated $380 billion in total losses for the year, according to Aon figures.

Extreme weather can undermine companies’ physical infrastructure and supply chains. It can also threaten the health of workers who toil outside the home in industries such as construction, agriculture and real estate. According to Aon, 24 countries and territories broke or equaled their previous maximum temperature records last year.

First print: January 25, 2024 | 11:45 PM IST