Insurance companies around the world paid out $27 billion for natural disaster claims last year, making it the number one driver of insured losses in 2015, data from
Munich Re showed Monday.
Weather was the greatest cause of these incidents, responsible for 94% of losses, despite the calming effect El Nino has had on the development of hurricanes in the North Atlantic.
Floods in the UK and Scandinavia from Storm Desmond early in December was particularly damaging, costing insurers about $764 million in claims. Later flooding from Storm Eva may bring that total to more than 1 billion euros.
In the United States, two tornado outbreaks and flooding caused widespread damage in December, though estimates are not yet available.
Meanwhile, the proportion of insured losses for catastrophes in developing and emerging countries remains low.
All told, the $27 billion in insured damage was lower than the $31 billion lost last year. It was also below the 10-year average of $56 billion. The dip in claims is creating some downward pressure on property/casualty rates, though lower claims payouts boost industry profit.
There is one concern in the data that is new, however. These losses seem to suggest that climate change continues to be a concern for insurance companies, according to Munich Re.
The insurance industry has lobbied governments to take action against climate change, citing such rises in payouts in heavily-insured countries. And Christiana Figueres, executive secretary of the United Nations Framework Convention on Climate Change, warned that the sector is not prepared for these unprecedented risks. “With the era of fossil fuel-powered industrialization at an end, the equilibrium that we had enjoyed as a result is also coming to an end and we are now facing new levels of risk and new types of risk,” she said.
“We have increased frequency, severity and scale of impacts because of globalization and the ‘domino effect’ it has. And the insurance industry is not ready for that yet,” Figueres said. “The insurance industry is ready to take on weather impacts, but not ready to take on climate change. They are not the same thing.”
The UN representative went on to say that the industry is at the “bottom of the curve of experience” regarding a risk exposure that is completely unprecedented.
“Can you insure against unbounded climate change? No. All modeling goes beyond what can be explained. You cannot insure against climate change,” she said.
Figueres told the insurance industry that insurance products need to evolve to meet these new types of risk. The UN claims that less than 1% of weather losses in developing countries are covered by insurance.
“This is not only morally irresponsible,” Figueres said, “but from a business imperative it’s a huge opportunity. Developing markets will be mostly affected so you have a role to play.”
