(Bloomberg) --Insured losses from natural catastrophes could soar to $145 billion this year — well above the 10-year average — as population growth, urban sprawl and climate change combine to supercharge risks, according to a report by Swiss Re Institute.
Severe thunderstorms, floods and wildfires are the main drivers behind this year's loss estimate, the reinsurer said in a report on Tuesday. The figure is based on a long-term growth trend of 5% to 7% each year and includes about $40 billion in losses from the Los Angeles wildfires.
Swiss Re also warned that the risk of "peak" loss years is growing. Such events, which can result in insured losses of about $300 billion in a single year, "should not be considered an anomaly," it said.
As natural disasters become more frequent, the US is bearing the brunt of insured losses. In 2024, America accounted for almost 80% of the global total, with losses concentrated in Florida, Texas, California, Louisiana and Colorado, Swiss Re said. The development has led to rising insurance premiums. In hurricane-exposed Florida, for example, premiums per household are now twice the national average.
In a separate report also published on Tuesday, Zurich Insurance said that extreme weather events led to about $2 trillion in economic losses over the past decade and will continue to disrupt "ecosystems, agricultural productivity and human health."
The outlook is now "alarmingly bleak," Zurich Insurance said.
Insurers and reinsurers have responded by raising prices in high-risk areas while seeking new sources of capital to buttress their balance sheets. For large, one-off disasters, insurers are passing more of the risk to capital markets via catastrophe bonds, a fast-growing market that's
"Insurance coverage is not keeping up with growing losses, leading to more underinsured or uninsured households and businesses," Zurich Insurance said in a statement.
Financial watchdogs are concerned about the systemic repercussions. The European Central Bank and the European Insurance and Occupational Pensions Authority recently
It's a similar story across the globe. Over the last 30 years, the total cost of insured losses from natural catastrophes grew at a faster pace than the global economy, more than doubling relative to global gross domestic product since 1994, according to Zurich.
The escalating costs "highlight an urgent need for action from governments, insurers, and communities to collaboratively build climate resilience," it said.
To keep a lid on losses, the insurance industry says it needs the flexibility to lower the cost of insurance while continuing to transfer risk to other parts of the financial economy. Swiss Re says that while it may be expensive to build dikes, dams and gates for flood protection, doing do is ten times more cost effective than rebuilding after a disaster.
"That is why it is important that capital grows in line with rising risk, for the industry to fulfill their role for future peak years," said Jerome Haegeli, group chief economist at the reinsurer.
