The New Normal: $100 Billion in Insured Nat Cat Damages  January 30th 2024

The New Normal: $100 Billion in Insured Nat Cat Damages

It has become clear that the protection gap is ever present; such losses are becoming the norm, not the exception. This is according to the latest Natural Catastrophe Review.

The review offers insight into recent events, lessons learned and the outlook for the future. From analysing the aftermath of 2023’s severe weather in the US and detailing North Atlantic hurricane activity in a changing climate, to exploring how the Panama Canal drought has disrupted global shipping, the review includes commentary from WTW experts and leading researchers from the WTW Research Network.

Key findings include:

• Secondary perils in focus: the economic and societal impacts of secondary perils were a focal point for risk managers in 2023 following a year dominated by severe convective storms, wildfires, droughts, and floods

• Record breaking storms: insurers in the US saw the costliest severe convective storms (SCS) year on record, with total claims exceeding $50 billion

• Reassessing thresholds: in recent years, insurers have viewed annualised losses in the region of $20 billion to $30 billion from US convective storms as indicative of a challenging year. But this threshold should now be reevaluated after the unprecedented damage seen in 2023 and the continued growth of property exposures.

Cameron Rye, head of modelling research and innovation, WTW Research Network, said: “In a world increasingly shaped by aging infrastructure, climate change, and urban growth into risk-prone areas, we are now facing disasters that were either not anticipated or deemed unlikely just a few years ago. Beyond economic damages, 2023 highlighted the need for a proactive approach to risk identification, mitigation and adaptation.”

After $70 Billion Hit, Insurers Wake Up to Growing Risks of Severe Convective Storms

The insurance industry is grappling with a new kind of weather risk that’s increasingly driving its biggest loss category.

While no single weather event caused more than $10 billion in losses for insurers last year, there were 37 thunderstorms that each cost at least $1 billion, according to a report by Aon Plc. That’s more than ever before and way above the average of 14 such storms in a single year, the insurance broker said.

The development is forcing the industry to rethink some of its risk assumptions amid a clear uptick in the number of thunderstorms across Europe and the U.S. Severe so-called convective storms, which are characterized by heavy rain and intense winds, accounted for about $70 billion of insured losses globally last year, Aon estimates. That’s equivalent to 59 percent of losses from all natural disasters, according to its report.

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

California to Get Drenched From Fast-Moving Atmospheric River

A fast-moving atmospheric river coming off the Pacific Ocean will drench northern and central California on Wednesday and then head for the the southern half of the state.

Northwest California will likely get the worst of the storm, with as much as 3 to 6 inches of rain, according to Bob Oravec, a senior branch forecaster at the US Weather Prediction Center. The central and southern portions of the state will receive 1.5 to 2 inches. The storm will blow through most areas in about 6 hours, limiting total rainfall.

“The one beneficial thing is that it’s moving quick and won’t be a multi-day event. It should be in and out in less than a day,” he said. “That’s something that will keep the precipitation totals from being super heavy.”

However, California is already close to being saturated from previous storms, so there’s a danger from landslides and flooding, according to the National Weather Service.

Creeks and streams may rise quickly as the rain comes down, especially in in Sonoma and Santa Cruz counties, the agency said in a hydrologic outlook. Steep hillsides in the San Francisco Bay area will be at risk of mudslides, and the storms will also bring the danger of power outages as they roar through.

Heavy rain will shift into Southern California Thursday and then push east, Oravec said. The system will deliver heavy rain to Texas and parts of the South over the weekend, the same region that’s faced flooding from other recent storms.

Florida's insurer of last resort to continue offloading policies in 2024

CEO says Citizens will be shedding thousands of policies this month

Citizens, Florida’s insurer of last resort, has projected that it will be transferring around 76,000 policies to various private insurance companies this month.

That is according to Citizens CEO and president Tim Cerio, who shared the details to the House Insurance & Banking Subcommittee last week.

Cerio also noted that approximately 338,000 policies will be transferred to private insurers over the course of the year.

Citizens currently holds a market share of around 18% and has been looking to shed policies amid threats of insolvency.

Reforms to US Disaster Aid Expose Growing Home Insurance Gap

When disaster hits in the US, the federal government gives aid to states and counties, but also to individuals. In 2022, the Federal Emergency Management Agency delivered $3.25 billion to nearly 1.4 million households recovering from damaging floods and fires. The aid money helps cover things as large as home repairs and as small as diapers, drinking water, food and other necessities.

This aid regime was created by Congress: The Stafford Act of 1988 threw a lifeline to Americans who were not covered by private insurance, a group assumed to be small. But that can no longer be taken for granted. Insurance rates are rising as costly disasters become more frequent, and with more and more people living in higher-risk areas such as coastal Florida and wildfire-prone parts of the West. Insurance companies are now stepping back from some markets. Just earlier this week, The Hartford announced it would become the latest major insurer to stop writing new policies in California.

“I am starting to see the insurance model breaking down faster,” said Craig Fugate, FEMA’s administrator during the Obama administration. “There are more people that, probably 15 or 20 years ago, had adequate insurance that today are either underinsured, or not even able to afford insurance or get coverage.”