Industry underestimated impact of natural disasters – Swiss Re

Global reinsurer Swiss Re has indicated that the insurance industry has significantly underestimated the impact of recent natural disasters in Europe and has raised concerns about some regions becoming uninsurable.

Gianfranco Lot, the group’s chief underwriting officer for property and casualty reinsurance, noted that models were substantially off in predicting the damage from events like the Turkey earthquake, the floods in Germany, and the hailstorms in Italy.

“Whether it’s the Turkey quake… or the floods in Germany or the hailstorms in Italy, models were off by factors as opposed to 10 or 20%,” Lot said to the Financial Times.

In 2023, global insured losses from natural catastrophes surpassed $100 billion for the fourth consecutive year, with $6.2 billion attributed to the Turkey earthquake.

Lot emphasized Swiss Re’s significant investment in improving its natural catastrophe models by incorporating more data. This effort aims to enhance the accuracy of predictions regarding the impact of such events.

Swiss Re identified the underestimation of extreme weather event costs as an industry-wide issue, stemming from inadequate data on current exposure and risk values. The increasing frequency and intensity of extreme weather events, driven by global warming, have escalated costs for the insurance and reinsurance sectors.

Homeowners worldwide are facing higher insurance premiums or struggling to obtain coverage, prompting discussions on the extent of government intervention needed to mitigate climate change costs for consumers. Lot stated that government intervention is necessary and beneficial in high-risk areas that have become uninsurable.

In the United States, the debate over disaster repair costs has been particularly contentious. Some home insurers have withdrawn from high-risk areas, such as parts of California. US home insurers often require local regulatory approval for pricing changes, leading to industry accusations that they cannot keep up with rising claims costs.

A senior executive from the American Property Casualty Insurance Association, Robert Gordon, also noted that government interference has led some US insurers to limit coverage in states frequently affected by natural disasters. Gordon asserted that efforts to prevent steep increases in home insurance costs have critically injured parts of the insurance market.

“That’s where you’re seeing in the US, the markets where you’re having a real availability crisis, it’s because the government is trying to suppress those [premiums],” Gordon said.

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