Swiss Re: NatCats drive insured losses above $100 billion for fifth consecutive year

The escalating toll of natural catastrophes (NatCat) is continuing to impact the insurance industry as 2024 estimates show another year of significant insured losses.

According to Swiss Re Institute's latest NatCat estimates, 2024 marks the fifth consecutive year that insured losses surpassed $100 billion globally. The United States, impacted by two major hurricanes, Hurricane Helene and Milton, and a high frequency of severe convective storms (SCS) made up at least two-thirds of this year's insured losses. Insured losses from Hurricane Helene and Hurricane Milton alone were estimated at around $50 billion. 

Balz Grollimund, Swiss Re's head of catastrophe perils, said in the press release, "For the fifth consecutive year, insured losses from natural catastrophes break the $100-billion mark. Much of this increasing loss burden results from value concentration in urban areas, economic growth and increasing rebuilding costs. By favouring the conditions leading to many of this year's catastrophes, climate change is also playing an increasing role. This is why investing in mitigation and adaptation measures must become a priority."

The increase of NatCat-related economic losses only further widens the protection gap that strains governments, communities and businesses disproportionately impacted by natural disasters.

"Economic development continues to be the main driver of the rise in insured losses resulting from floods, but also other perils, seen over many decades. However, with natural catastrophe risks rising and higher price levels, the annual increase of 5–7% in insured losses will continue, and protection gaps could remain high", said Jérôme Jean Haegeli, Swiss Re's group chief economist. "This highlights the need for adaptation in combination with an adequate insurance coverage that can support financial resilience."

In a recent publication by the Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) and the International Association of Insurance Supervisors (IAIS), experts  examined the potential for parametric insurance to close the NatCat protection gap, highlighting the importance of high-quality data and providing several measures to improve analytical and modeling capabilities.

According to the IAIS, an international organization of insurance supervisors and regulators, parametric insurance is a promising solution to help address the uninsured by providing broad coverage through rapid, predetermined payouts set by the measurable magnitude of a trigger event. The payouts are quickly distributed because the threshold is set by the potential loss of the event, rather than by the loss assessments from the claims adjustment process. Communities impacted by natural disasters like earthquakes or floods would benefit from this type of coverage, where the payout structure would be based on a parameter such as the magnitude, wind speed or water depth of an affected area. 

The adoption of this parametric insurance has been limited due to several factors like regulatory challenges, inaccurate or insufficient data, model accuracy and product complexity. The paper highlights a series of actions for insurance supervisors to meet these challenges and improve the affordability and accessibility of parametric insurance coverage, including insights into creating a supportive regulatory environment that provides greater legal certainty for the use of parametric products. Technology plays a critical role in covering a catastrophic event, according to the IAIS, and improves the accessibility and adoption of such coverage. Solutions like mobile tech, AI and machine learning (ML) are particularly beneficial for low income communities by offering a more affordable and accessible way to manage risks and sending rapid payouts, according to the paper.