2023 on track to become another $100bn+ loss year as record SCS bill continues to grow
Insured losses from natural catastrophes are expected to again top $100bn during 2023, despite the lack of large losses from this year’s Atlantic hurricane season.
Preliminary estimates from brokers Aon and Gallagher Re have suggested insured losses of $88bn and $93bn respectively as of the end of Q3.
Severe convective storms (SCS) have again been the main driver of loss, continuing the trend of recent years.
Gallagher Re has estimated US SCS losses at $54bn for the nine-month period, with Aon reporting industry losses of $50bn+ for the peril.
According to Aon’s ranking, eight of the 10 costliest loss events of 2023 to date have been from US SCS.
Gallagher Re said 2023 marks the fifth consecutive year with insured US SCS losses exceeding $20bn. Hail, which typically accounts for 50-80 percent of SCS claims, has again been the largest driver of loss from the peril.
The broker said 2023 ranks second for the largest number of reports of large hail reaching two inches or more. Expanding urban footprints in hail-prone regions in tandem with the increasing cost and size of homes has further exacerbated the cost of hail-related claims.
The impact of the SCS peril has not been confined to the US. European SCS losses have now topped $4.5bn for the third consecutive year, Gallagher Re said.
Notably, hail losses in Italy throughout July are expected to have cost insurers around $2bn, and will likely have ramifications for the country’s carriers during upcoming renewal discussions.
As Munich Re has noted, Europe has seen seven billion-euro insured loss events this year, including four in the third quarter. These include the Italian hailstorms noted above, as well as Storm Hans in Norway, flooding in Slovenia, Austria and Croatia, and another hail event in Germany in late August.
While SCS has dominated this year’s loss activity, Gallagher Re’s chief science officer Steve Bowen said it is important to also consider the impact of other so-called secondary perils.
“Hawaii, for example, is not an area where we would expect to see a multi-billion dollar fire loss event. Many of the areas that previously identified as being higher risk based on changes to the hazard are now starting to translate into higher losses,” he said.
Another notable Q3 event was the flooding which followed Typhoon Doksuri in China.
“Any billion-dollar industry loss event in China is notable,” Bowen explained. “China is an example of an area where we are seeing more insurance take-up.
“The remnants of Doksuri combined with additional monsoon rainfall brought significant flooding to the Greater Beijing region – it resulted in a $1.3bn loss, which is a big number for the country.
“Economic losses for that event were around $20bn, highlighting that there is still a significant protection gap. But China is an example of an area where we are seeing more insurance take-up.”
The deadliest events during the third quarter were the catastrophic flash flooding in Libya and the Morocco earthquake, both of which occurred in early September.
“We are looking at a ~$500mn industry event for Morocco, which is a sizeable event for that country. The overall economic loss from the event was around $6bn, again highlighting the significant protection gaps that exist.”
Bowen said the cover provided by the EV CAT natural catastrophe pool in Morocco – backed by excess of loss cover placed by Gallagher Re – demonstrated the importance from a risk mitigation standpoint of ensuring some level of insurance framework is in place.
“This also highlights the importance of parametrics to enable coverage in areas where there is not much traditional insurance in place. There is a real need for more of these non-traditional products and we are seeing the benefits of these emerging in areas such as Africa, Latin America and parts of Southeast Asia, where there is still the need to build more protection for government entities that allow the money to trickle down to the end-user,” he said.
Limited hurricane activity
In contrast, this year’s Atlantic hurricane season has delivered limited losses, with Hurricane Idalia being the only notable event. Damage estimates for Idalia have fallen since early projections of a potential loss in the $5bn range were issued – Gallagher Re’s latest estimate for the event indicates an insured loss of just $1.25bn.
“The good news has been from Hurricane Idalia – there was concern it had potential to become a much more expensive event,” Bowen said. “But if you were going to play a landfalling Category 3 storm in Florida, you couldn’t have found a better place from an industry perspective.
“While it will be another billion-dollar event – we have the loss estimated at $1.25bn – it impacted an area of very low population density. Around 200 miles to the south and it would have been an entirely different type of loss.”
The lack of industry losses from US hurricanes is despite a busy Atlantic season, which at the time of going to press has seen 20 named storms.
“It was a very active period for Atlantic hurricane activity in Q3 but that didn’t translate to loss. That’s an important point – there is a lot of emphasis on frequency, but that doesn’t always translate into loss,” Bowen said.
“You can also have the opposite effect where there are fewer storms, but one is a big event that hits a highly populated area and completely changes the narrative for the industry.
“The fact that right now we are facing another $100bn loss year for the industry, but we haven’t seen a significant landfalling Atlantic hurricane, once again reinforces the primary versus secondary debate, and whether we should be placing more weight on secondary events. 2023 is set to be the year where we have those conversations about whether we need to do away with framing of primary/secondary perils.”