Insurance industry losses from natural catastrophes and man-made disasters globally were $83 billion in 2020, according to preliminary estimates by the Swiss Re Institute. This makes 2020 the fifth-costliest year for the industry since 1970.
Losses were driven by a record number of convective storms – thunderstorms with tornadoes, floods and hail – and wildfires in the US, Swiss Re Institute said. These and other secondary peril events globally accounted for 70% of the $76 billion in insured losses from natural catastrophes. An extremely active North Atlantic hurricane season accounted for an additional $20 billion in insurance claims – a moderate amount compared to the record seasons of 2005 and 2017, the institute said. The insurance industry covered 45% of global economic losses in 2020, above the 10-year average of 37%.
Climate change is expected to exacerbate secondary peril events as more extreme weather conditions are created by rising temperatures and more humid air. These climate-change effects promote the onset and spread of events like wildfires, storm surges and floods, Swiss Re Institute said.
“As with COVID-19, climate change will be a huge test of global resilience,” said Jerome Jean Haegeli, Swiss Re Group chief economist. “Neither pandemics nor climate change are ‘black swan’ events. But while COVID-19 has an expiry date, climate change does not, and failure to ‘green’ the global economic recovery now will increase costs for society in future. This year’s natural disasters impacted regions with more insurance cover in place, providing vital support to the people and communities affected and enhancing their financial resilience.”
The US saw a record number of convective storms throughout the year, likely leading to record annual losses in the country for this peril, Swiss Re Institute said. Australia and Canada posted significant losses from hail damage in 2020. In January, hailstorms in southeastern Australia caused insured losses of more than $1 billion, while Canada saw $1 billion in losses from its costliest-ever hailstorm, which hit Calgary in June.
Fire also caused secondary peril losses for insurers, Swiss Re Institute said. Wildfires caused high insured losses in the US from mid-August, and Australia’s 2019 wildfire season – the longest and most destructive ever recorded – was still burning in early 2020.
Other secondary perils included severe floods in several provinces along the Yangtze River in China, which caused insured losses of about $2 billion, according to the institute.
There were a record 30 named storms during the 2020 North Atlantic hurricane season, including five named storms that made landfall in the state of Louisiana alone. However, most US landfalls didn’t hit heavily populated areas, resulting in relatively low insured losses of $20 billion – far lower than in the previous record hurricane seasons of 2017 and 2005.
“Large-scale climate conditions in the North Atlantic suggest elevated hurricane activity for 2021 and likely beyond,” said Martin Bertoff, head of catastrophe perils at Swiss Re. “This increases the probability of a catastrophic landfall. Combined with the loss impact of secondary perils accelerated by climate change, insured catastrophe losses will only rise in the future.”
Winter storms in Northern Europe were responsible for more than $2 billion in combined insured losses, while a May cyclone in the Bay of Bengal caused economic losses of $13 billion – the most destructive tropical cyclone India has ever endured. However, insured losses are expected to be just a fraction of that due to the area’s low insurance penetration.