Insurance industry losses from natural catastrophes and man-made disasters across the globe amounted to $83 billion in 2020, making it the fifth-costliest year for the industry since 1970, according to the Swiss Re Institute in its preliminary sigma estimates.
Natural catastrophes caused $76 billion of global insured losses, up 40 percent from 2019, mostly from secondary peril events such as severe convective storms (thunderstorms with tornadoes, floods and hail) and wildfires in the U.S. In addition, manmade insured losses came to $7 billion in 2020, down 17 percent from the previous year.
Secondary perils* accounted for 70 percent of the $76 billion in insured losses from natural catastrophes, said Swiss Re. These secondary peril events are expected to increase as more humid air and rising temperatures create extreme weather conditions, which exacerbate wildfires, storm surges and floods.
The North Atlantic hurricane season was very active with a record 30 named storms, but its insurance price tag of $20 billion was moderate compared to the record seasons of 2005 and 2017, said Swiss Re.
Although five named storms made landfall in the U.S. state of Louisiana alone, a record number, the report noted that most U.S. landfalls did not hit densely populated areas in 2020.
As a result, the insurance industry saw relatively low insured losses of $20 billion, far lower than in the previous record hurricane seasons of 2017 (when Hurricanes Harvey, Irma and Maria had an insured price tag of $97 billion) and 2005 (when Hurricane Katrina cost insurers $87 billion).
The report went on to say that the insurance industry covered 45 percent of 2020’s global economic losses of $187 billion, above the 10-year-average of 37 percent (which indicates a narrowing of the insurance protection gap). (Editor’s note: Economic losses include insured and non-insured damage costs).
“As with COVID-19, climate change will be a huge test of global resilience. 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,” said Jerome Jean Haegeli, Swiss Re Group chief economist, in a statement.
“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,” he continued.
Other findings from the report include:
Swiss Re Institute said it will publish updated 2020 loss figures in a full sigma report in the spring of 2021.
* Swiss Re defined two types of events as secondary perils: (a) independent, high frequency event (i.e., more frequent than primary peril events such as earthquakes and hurricanes), low-to-medium severity loss events (relative to losses resulting from primary perils); and (b) events that occur as secondary effects of primary perils, such as a tsunami following an earthquake.
Source: Swiss Re
Photograph: A firefighter walks past burning trees during a battle against bushfires around the town of Nowra in the Australian state of New South Wales on Dec. 31, 2019. Thousands of holidaymakers and locals were forced to flee to beaches in fire-ravaged southeast Australia, as blazes ripped through popular tourist areas leaving no escape by land. Photo credit: Saeed Khan/AFP via Getty Images.
*This story ran previously in our sister publication Insurance Journal.