$100bn insured losses now the norm as secondary perils grow

Last year saw a global insured loss exceeding $100bn, the fourth consecutive year of such losses, and a total economic loss surpassing $350bn. As WTW notes in its latest Natural Catastrophe Review, a year recording more than $100bn in insured damages is now more of a norm than an aberration, reflecting growth in exposures and inflation.

It notes that secondary peril losses, primarily severe convective storms in the US and Europe, contributed substantially to the year’s insurance claims, underscoring their growing influence. Indeed, WTW says the term ‘secondary perils’ is perhaps a misnomer given the increase in losses from such perils in recent years. “This increase has led many insurers to call for alternative labels, such as ‘earnings’ perils, to acknowledge that what might be secondary in terms of individual event losses can still have a primary effect on their profitability in aggregate,” says WTW.

In the review, WTW says 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. It was a year of record-breaking storms – insurers in the US saw the costliest severe convective storms (SCS) year on record, with total claims exceeding $50bn.

In the second half of 2023, Hawai’i witnessed its deadliest wildfire in recent history, claiming more than 100 lives. And in Europe, northern Italy faced an unprecedented hailstorm, and certain countries – including Portugal, Spain, Italy and Greece – were hit by severe wildfires, the review notes.

It also points to the Panama Canal, which experienced its worst drought since it opened in 1914, leading to major global shipping disruptions, while flooding caused destruction globally, with notable events in Slovenia, New York City, Hong Kong and Beijing. WTW highlights Storm Daniel, which brought extensive flooding to the Mediterranean region, culminating in catastrophic dam failures in Derna, Libya.

According to WTW, in recent years, insurers have viewed annualised losses in the region of $20bn to $30bn from US convective storms as indicative of a challenging year. But WTW says 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.”

In the review, WTW states: “This evolving situation necessitates a pivot toward not just recognising but actively preparing for a wider array of risks, some of which might have been previously dismissed or underplayed.”

The broker says one way risk managers can tackle this challenge is by examining how historical events could have resulted in worse outcomes, also known as downward counterfactual analysis. For example, says WTW, in 2018, Hawaii experienced wildfires very similar to those in 2023 affecting West Maui. Although the 2018 fires were less severe, exploring how they might have escalated could have better prepared risk managers for the significantly more destructive wildfires in 2023.

Similarly, a 2022 research paper on historical flooding in Libya warned that a recurrence of a major event, such as the devastating 1959 floods, could result in dam failures in Derna. WTW says that despite this prediction, the warnings went unheeded, and the anticipated risk materialised following storm Daniel in 2023. “By examining what-if scenarios, organisations and governments can gain insights into potential vulnerabilities and develop strategies for a more resilient future,” WTW says.