WTW highlights need for enhanced risk modelling for nat cats
Natural catastrophes continued to put a strain on global insurance markets in the second half of 2024, with the insurance protection gap for natural catastrophes estimated to stand at 60%, according to WTW’s Natural Catastrophe Review (July – December 2024), which stressed the need for enhanced risk modelling and improved resilience.
Global insured losses surpassed $140bn in 2024, marking the fifth consecutive year that insured damages exceeded $100bn, said the broker. Total economic damages surpassed $350bn, “once again highlighting the inadequacy in resilience to climate-related risks”, said WTW.
It noted that major events in 2024 included Spain’s costliest natural catastrophe (the Valencia floods causing €3.7bn in claims), the highest insurance claims on record for natural catastrophes in Canada ($5.6bn), hurricanes Helene and Milton, which made landfall in Florida (combined $45bn) and the deadliest Western Pacific typhoon season since 2013.
Wildfires in Los Angeles have already driven insurance loss estimates in the region of $30bn-$40bn in the first few weeks of 2025. In addition, 2024 became the first year on record to exceed 1.5°C above pre-industrial levels.
“The mounting financial impact of natural catastrophes continues to be driven by the expansion in both the number and value of assets at risk,” said WTW. “However, climate change is also playing an increasingly prominent role, with several events in 2024 being linked to human-caused warming, including hurricanes Helene and Milton, the South American drought, and Storm Boris, which impacted Europe.”
The broker highlighted the need for enhanced risk modelling, innovative insurance solutions and proactive adaptation, and the need for mitigating measures to address the growing impacts of climate change on economies and societies.
Hélène Galy, head of WTW Research Network said: “Our long-standing collaboration with scientists gives us better insights into growing exposure to perils, especially perils that are changing rapidly. It’s easy to be lured by the increased sophistication of risk models: a deeper understanding of data and science is critical to identify real improvements and remaining limitations of risk models, to make them more useful to decision-makers.”
Peter Carter, head of climate practice, WTW, added: “Credible data and risk models can help you make informed choices about trade-offs: making investments to become more resilient, buying more insurance protection or accepting the risk. Beware of becoming overly committed to one approach. Simply having lots of data or a single modelling approach may not give the robust risk perspectives you need. Seeking expert input and a more nuanced modelling approach, where you challenge your core modelling approach with a different approach, will provide alternative perspectives. Then you will navigate an increasingly volatile natural hazard environment much more effectively.”
