Natural catastrophe insured losses in 2023 should reach or exceed $100 billion for the fourth consecutive year, according to a new Swiss Re Institute Sigma report.
The most significant factors behind the string of higher claims payouts is the growth in exposure values from new construction in high-hazard areas and higher replacement costs from inflation, said Swiss Re Institute, which produced the report that examines regional insurance market structures and long-term premium growth trends.
In the United States, insurers incurred at least $80 billion in losses in the first nine months of the year, exceeding the $74 billion inflation-adjusted, 10-year average for the period, according to Swiss Re’s preliminary estimate.
Social inflation in the United States has risen on expanded concepts of liability, greater willingness to settle conflict through legal proceedings, large defense costs, juror attitudes toward corporations, “extremely high” jury awards, boarders policy interpretation, and a more plaintiff-friendly environment, said Swiss Re.
“Social inflation is primarily a U.S. trend, resulting principally form aspects of its legal system and culture,” it said in the report.
Despite progress on economic disinflation, claims development is a “major concern for the property/casualty insurance sector. Claims have risen significantly across lines of business in virtually all major nonlife insurance markets over the past five years,” Swiss Re institute said.
A wave of layoffs during the past year has been precipitated by lackluster underwriting results as claims costs shot up, hitting personal lines writers hardest, industry watchers said recently.
Economic inflation’s effect on claims eased this year from the prior year but remained elevated. It expanded to wages and health care costs, impacting casualty lines, Swiss Re said
Looking to the next two years, Swiss Re said it anticipates the effect of inflation on claims to ease further, which it said could push structural trends such as greater exposure to natural catastrophes and social inflation back to the “heart of claims dynamics.”
Global severe convective storm insured losses surpassed $50 billion for the first time and hit the market within the first three quarters, in part because the United States is particularly prone to the hazard due to its geography, it said.
Frequency of the storms has been notable. Natural catastrophes cost global insurers at least $22 billion in the first quarter, with more than $10 billion of that coming from the most-expensive first quarter on record for severe convective storms in the United States, Gallagher Re said earlier. Its Chief Science Officer, Steve Bowen, said severe convective storms haven’t been “a ‘secondary’ consideration to the U.S. insurance market for a long time”
But severe convective storm losses are rising in other countries, too. In July, carriers in Italy incurred the largest loss for the peril outside the United States, Swiss Re said, where storms broke weather-related loss records in that country.
The Northern Italy storms dominated non-U.S. insurance industry natural catastrophe losses in the third quarter, with an initial $2.2 billion loss estimate, according to industry risk-assessment firm Cresta.
“Globally, losses from severe convective storms are rising by about 7% annually in the last 30 years and have surpassed $30 billion every year since 2020,” according to Swiss Re Institute.