Chubb, like all P/C insurers, is seeing regular spikes in commercial and personal property insured losses due to increasingly costly natural catastrophes. Chubb Chairman and CEO Evan Greenberg said it is extremely important to understand where they are coming from, and not all of it is directly from climate change.

“We are striving to stay on top of this, and have an awful lot of resources dedicated to the effort,” Greenberg said during Chubb’s Q3 2021 earnings call on Oct. 27. “Frankly, I think we’re in pretty good shape.”

Evan Greenberg/Chubb

Greenberg noted that the insurer dealt with more than $1.1 billion in natural catastrophe losses during Q3, but was able to manage that onslaught and achieve a 93.4 combined ratio at the same time. Part of that is due to overall business strength and diverse sources of underwriting earning both domestically and globally. But Greenberg asserted that the insurer also has a strategy to confront the issue and target closely where the cost hikes are coming from. More climate change-related adverse weather events are only part of the problem, he said.

The Strategy and Challenge

As Greenberg explained, the industry has seen a rise in recent years in the frequency and severity of insured commercial and personal property losses globally due to natural catastrophes. This, he said, has come from “less well-modeled” and non-modeled causes.

Chubb looks at this trend with an objective of pricing the business adequately and getting paid for the risk, but also understanding the advantage of accumulation of exposures against weather-related perils, either modeled, non-modeled or less well-modeled risks.

“First, we are seeing today changes globally in the frequency and severity of the perils such as tropical storms, wildfires and floods,” Greenberg said. But he arguing that it is important to dig deeper to achieve maximum understanding of the trend because the drivers are not necessarily obvious.

One example of this is U.S. hurricane activity, which Greenberg observed isn’t unique in frequency, or frequency of intense storms as measured by wind speed, as those monitored in the first part of the 20th century.

“Repeats of storms from this earlier period would in fact generate losses far greater than any modern storm in terms of industry loss, all of which is already contemplated in our modeling and risk management,” Greenberg said. “With all of that said, there is evidence now that the amount of precipitation contained within the [more recent] storms appears to be greater, and that is increasing the amount of loss emanating from the events.”

Another factor leading to those higher natural catastrophe losses is changes in the exposure footprint for insurable personal and commercial properties.

“Increases in actual exposure units and values, GDP growth, demographic shifts to higher risk geographies and aging building stock are all examples of factors that are leading the higher loss potential,” Greenberg explained.

A third element – increasingly vulnerable infrastructure, is driving up costs. Greenberg said the levy failures during Hurricane Katrina in 2005 are a good example of this, as well as the systemic electric grid shutdown during the 2021 Texas freeze.

“We are actively working to reflect the impact of all of these trends in our pricing, risk selection and exposure management,” Greenberg said. “We have significant advances in modeling, especially secondary perils such as floods and wildfires, but there is still a way to go.”