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Hurricanes, floods bring $120 billion in insured losses in 2022

Hurricane Ian in the United States and floods in Australia helped to make 2022 one of the costliest years on record for natural disasters, Munich Re said Tuesday, warning that climate change was making storms more intense and frequent.

Losses from natural catastrophes covered by insurance totaled around $120 billion last year, similar to 2021, though short of 2017’s record damages, said Munich Re, the world's largest reinsurer.

The annual tally by Munich Re was higher than the average of $97 billion in insured losses over the previous five years and exceeded an initial estimate of $115 billion last month by rival Swiss Re.

“Weather shocks are on the rise,” Ernst Rauch, chief climate scientist at Munich Re, told Reuters. “We can't directly attribute any single severe weather event to climate change. But climate change has made weather extremes more likely.”

Annual insured losses of $100 billion appear to be "the new normal," he said.

Total losses from natural catastrophes, including those not covered by insurance, were $270 billion in 2022. That was down from around $320 billion in 2021 and near the average of the previous five years

Californians warned to head to high ground as waters rise

After years of drought, California is in a long flood fight as waves of storms roll in off the Pacific, killing at least 14 people, closing highways and schools and sending residents fleeing for their lives.

The parade of storms since the end of December is one of the biggest tests yet for disaster-weary California, which has endured a crucible of wildfires and extreme heat in recent years as global warming makes weather ever-more extreme.

On Monday, residents in the tony coastal enclave of Montecito, home to Oprah and Prince Harry, were told by state officials in a tweet to “LEAVE NOW” while shelter-in-place orders were issued in other parts of Santa Barbara County. Several other towns throughout the state advised residents to get out before more rivers flood.

“California is experiencing coincidentally a drought emergency and a flood emergency,” said Department of Water Resources Director Karla Nemeth during a media briefing Monday.

Highway 1, pathway to the state’s renowned coastal area of Big Sur, was closed following a mudslide, according to the California Department of Transportation website. In addition, the westbound lanes of Interstate 80 near Sacramento, the state capital, have been shut by floods and many other roads throughout the state have been closed.

Emergency shelters were opened in Santa Cruz County, about 75 miles (121 kilometers) south of San Francisco, where the San Lorenzo River rose 17.7 feet (5.4 meters) since Sunday and towns throughout the area flooded. Levels on the river probably have peaked but there will be another round of intense rain later, said Daniel Swain, a climatologist at the University of California, Los Angeles. People in nearby communities were told to evacuate.

How does the insurance industry manage a climate in crisis?

Hurricane Ian in the United States and floods in Australia helped to make 2022 one of the costliest years on record for natural disasters, Munich Re said Tuesday, warning that climate change was making storms more intense and frequent.

Losses from natural catastrophes covered by insurance totaled around $120 billion last year, similar to 2021, though short of 2017’s record damages, said Munich Re, the world's largest reinsurer.

The annual tally by Munich Re was higher than the average of $97 billion in insured losses over the previous five years and exceeded an initial estimate of $115 billion last month by rival Swiss Re.

“Weather shocks are on the rise,” Ernst Rauch, chief climate scientist at Munich Re, told Reuters. “We can't directly attribute any single severe weather event to climate change. But climate change has made weather extremes more likely.”

Annual insured losses of $100 billion appear to be "the new normal," he said.

Total losses from natural catastrophes, including those not covered by insurance, were $270 billion in 2022. That was down from around $320 billion in 2021 and near the average of the previous five years

FEMA shrinks NFIP reinsurance program by over 50% amid hard market

The U.S. Federal Emergency Management Agency (FEMA) has completed its 2023 traditional reinsurance placement for the National Flood Insurance Program (NFIP), transferring an additional $502.5 million of flood risk to the private reinsurance market for a total premium of $90.2 million.

Together with its three in-force catastrophe bond transactions, AFEMA has transferred $1.9275 billion of the NFIP’s flood risk to the private sector.

The latest traditional placement is effective throughout the calendar year with 18 private reinsurers, and covers portions of NFIP losses above $7 billion arising from a single flooding event.

The agreement is structured to cover 8.5625% of losses between $7 billion and $9 billion, and 16.5625% of losses between $9 billion and $11 billion.

When compared with its 2022 January renewal, FEMA’s 2023 placement is actually more than 50% smaller, while the attachment point has risen, year-on-year, from $4 billion to $7 billion. At the same time, the premium paid by FEMA has come down by almost half, while 10 fewer reinsurers participated this year than in the 2022 renewal.

Revealed – insurers' tech priorities for 2023

Improving customer experience and operational efficiency, rather than growth, will be the driving force for most insurance digitalization efforts in 2023, according to a new survey from Gartner.

The 2023 Gartner CIO and Technology Executive Surveypolled 2,203 CIOs – including 91 from the insurance industry – across 81 countries.

“Improving the customer experience (CX) ranked higher in the survey this year than more strategic focuses, such as growing revenue or new products/services development to support transformation,” said Kimberly Harris-Ferrante, distinguished VP analyst at Gartner. “The economic stressors of the coming year are making companies refocus and shift directions to fill gaps which have existed for many years.

“Insurers need more customer data, including more behavioral and preferential data, to effectively execute digital business strategies aimed at cross-sell/upsell, panoptic personalization, dynamic customer engagement and revenue growth through new products/service.”

Focused on the future for insurtechs

There have been numerous changes for the insurance industry due in large part to the pandemic, evolving risks such as cybersecurity, and a shift in how and where people work. Inflation is affecting everything from employee salaries to the cost of food, building materials and other necessities.

For insurers, both premiums and claims costs are increasing, so finding ways to operate efficiently while maintaining relationships with policyholders, agents, brokers and vendors has become incredibly important.

In this latest Insurance Speak podcast, Guy Goldstein, CEO of Next Insurance examines some of the factors affecting the industry such as the role of technology, the importance of new product development, and what he sees ahead for 2023.

Small commercial insurance distribution tech investments

Small commercial insurers are in a unique position in the insurance industry. While the personal lines segment often pioneers the latest innovations first in the industry, small commercial carriers are frequently at the forefront of change in the commercial market before technologies reach mid/large commercial risks. When looking at the past few years, small commercial carriers have progressed significantly in applying straight-through processing, digital self-service capabilities, and other capabilities in certain areas of their business, particularly distribution. But the ever-evolving distribution landscape demands technology solutions to support channel partners and optimize business processes. So, where are small commercial insurers focusing their technology investments today?

A recent survey of executives at small commercial lines insurers reveals some shifts in what is driving distribution investment decisions this year. According to the "Distribution Technologies for Small Commercial Lines: Carrier Plans in 2023 and Beyond" report, nearly all small commercial insurers say improving the customer experience for the agent/broker is one of their top business drivers for tech investments. This is an increase of 20% over 2021 and indicates how the industry is becoming more experienced-focused.