Munich Re lead digs into natural disaster losses

A recent analysis from Munich Re Group offered a timely update into natural disaster losses in the first half of 2024 – with global losses reaching $120 billion while global insured losses hit $62 billion, significantly higher than the 10-year average of $37 billion.

Sharing insights into the overall loss figures, Tobias Grimm (pictured), head of climate advisory and natcat data at Munich Re, noted that while these were lower than the previous year (at $140 billion), they exceeded the average values for both the past 10 years and the previous 30 years. He also highlighted how some five decades of collecting data on natural hazard losses had led the reinsurance giant to uncover two key contributing factors behind increasing losses.

The first of these is the changing spread of wealth and assets, as, even when factoring inflation into the mix, values are increasing all the time as humans continue to settle in regions highly exposed to natural hazards. The second is how the global climate is changing. “That’s what we’re investigating thoroughly, by region and by peril,” he said. “Overall, climate change leads to more intense weather extremes, mostly related to flooding, severe convective storms, heatwaves, droughts and wildfires – and to some extent, also to a change in the frequency of these events.”

It is this observation that has led to the development of climate attribution studies which look to link one single extreme weather event with climate change. The question at the core of climate change data is around likelihood, and the likelihood of these events is changing as once-in-100-year events become once-in-50-years, or even once-in-20-year events.

Global insured losses – what’s happening?

Zeroing in on global insured losses and how these have evolved – both year-on-year and over the course of the last decade – Grimm cited how six of the seven years from 2017 onwards saw global insured losses hit or exceed the “new normal” of $100 billion or higher. This figure hit $62 billion in H1 of 2024 alone, he said, and, putting that into perspective, statistics show that the second half of any given year is usually costlier, given that the peak of the hurricane season begins in H2 and tends to contribute the most to the overall losses.

“Peak season is now August, September and October, that’s where we expect lots of hurricanes. Our expectation is of seeing 23 named storms – out of them, 12 hurricanes and six as major hurricanes,” he said. “The high number is expected as sea surface temperatures are very high in the main development regions and once the oceans are at that point, it’s great fuel for the formation of hurricanes.”

Where does the global protection gap stand today?

Turning his attention to the proportion of insured versus uninsured assets, Grimm highlighted how the global protection gap is fluctuating over time. Looking to H1 2024, he highlighted that the gap was quite low, with only 48% of losses uninsured, which was largely due to the bulk of losses coming from SCS (Severe Convective Storms) losses, which are relatively well covered in the US.

The protection gap over the last 30 years has been 68%, he said, which is trending to reduce over time, largely due to the development of insurance schemes in the less developed world, though those efforts are not without their obstacles and challenges. There are a lot of technical reasons why the insurance protection gap still exists today, not least because of how coverage schemes are either not established or simply not well known.

Assessing non-peak or ‘secondary’ perils

A key finding of the Munich Re report looked to the impact of non-peak or ‘secondary’ perils, with 68% of overall losses, and 76% of insured losses, attributable to severe thunderstorms, flooding and forest fires. “Non-peak perils are really top of mind for our industry,” Grimm said.

“It’s on us to diversify portfolios across regions and across types of risk. Our business model is always about diversification. We potentially also use financial tools such as catastrophe bonds, so we’re transferring risks further down the capital market to further spread out the risks. Our overall risk appetite is always defined by our risk strategy, by our business strategy, and also by regulatory requirements and capital constraints.”

The Munich Re approach is not to necessarily limit its exposure to any particular peril but rather to take the time and effort required to wholly understand the peril and to refine its models with regard to non-peak perils. The group is always looking to engage with the most recent research, he said, from both actual events and climate scientists and to feed those insights into its models in order to stay on top of its risk exposure.  

What’s next?

Grimm noted that after a very costly half-year, the market is facing a potentially very active hurricane and wildfire season.

“If we think about increasing losses, someone needs to foot the bill,” said Grimm. “And either it’s the government or it’s the insurance industry, or it’s the insured person themselves.

“That’s why it’s that important to reduce future losses by thinking ahead about preparedness topics [whether through] flood retention schemes, putting protection measures in place, or having early warning systems for tornado outbreaks and hail storms, etc… It really is an ever-increasing topic.”