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While 2023 may well turn out to be the warmest year on record, human activities that generate carbon gas emissions aren’t the only ones driving spikes in weather-related insurance losses, a reinsurance brokerage firm executive said recently.

“Guy Carpenter’s conclusion for severe conductive storm, as well as aspects of hurricane and wildfire risk, is [that] the increase in recent industry losses is driven predominantly by human influences outside of climate change,” Josh Darr, Global Head of Peril Advisory at Guy Carpenter, said during a media briefing ahead of the Rendez-Vous de Septembre.

During his presentation, Darr spent several minutes reviewing weather statistics and loss numbers piling up this year so far, noting that the first seven months of 2023 were the third-warmest in records dating back to 1850—trailing only behind the 2016 and 2020 comparable seven-month periods. The seventh month by itself—July—he reported, was 2 degrees Fahrenheit above the 20th Century average, making it the warmest July on record.

“Multiple records suggest at least a 45 percent probability of 2023 becoming the warmest year on record,” he said, also noting that global sea surface temperatures having exceeded daily records since mid-March, indicative of a strengthening El Nino event across the tropical Pacific, and that while strong El Nino events are tied to warmer-than-average global temperatures.

But global warming isn’t the sole reason—or the primary reason—that primary insurers are ended up with more losses. “While human-driven carbon emissions are part of the equation in driving exceptional warmth this year, the impact on loss outcomes is driven by a confluence of many variables,” he said, highlighting the following aspects of human activity as significant drivers of loss outcomes:

  • Increased urbanization. Urbanization and shifting land use to impermeable surfaces (asphalt and concrete) drive increased propensity for urban flooding and associated losses.
  • Population migration. Population movements to warmer weather cities tends to present elevated levels of catastrophe risk. “Sprawling population centers result in larger targets for weather events to strike,” Darr added.
  • Power grid reliability. Power grids are challenged in winter storm events, “driving losses materially higher than historic events in the past due to power outages,” also causing ancillary damage such as burst pipes and damaged infrastructure.
  • Closer to hazards. High value property in desirable regions—near the mountainous and along the coastlines—”bring hazard potential closer to communities.”
  • Cost Inflation. Darr cited a 35-40 percent increase in the U.S. Producer Price index, highlighting cumulative input cost to construction across a range of industries. “While inflationary pressures are beginning to subside during the course of 2023, the cumulative shift has direct impact on claims severity for repairs after catastrophes,” he said.

“Industry loss estimates for the first half of 2023 remain well above the decadal average, despite [a] comparatively smaller impact on reinsurers. The headline is severe conductive storm [SCS] activities. across the United States,” he said, reporting that multiple industry estimates put SCS loss outcomes in excess of $30 billion for the first six months.

More Storm Warnings

Separately, Aon reported that 70 percent of global insured losses were driven by SCS in 2023, including $35 billion in the U.S. in the first half of the year.

Reaching the same conclusion as Guy Carpenter, that climate changes aren’t the main driver of severe convective storms, Aon reported that more than 80 percent of SCS loss growth from 1990-2022 can be explained by exposure changes. SCS exposures increased at a rate of 8.6 percent per year during that time, while SCS insured losses rose at rate of 8.9 percent.

Displaying a graph indicating the frequency and costs of U.S. SCS Billion-Dollar Events based on information from the NOAA National Centers of Environmental Information, Darr noted that the frequency of billion-dollar SCS events in 2023 has already tied the high watermark of full-year 2020. 2023 has also eclipsed 2011 in terms of overall cost, the graph shows.

Darr pointed out that unlike 2011 and 2020, when marquee events like the Joplin and Tuscaloosa tornado outbreaks (2011) and Iowa and Illinois Derecho (2020) fueled the loss cost totals, 2023 has instead featured many small-to-medium sized loss events “leading to more retained loss by insurers.”

Darr’s presentation followed introductory remarks by Guy Carpenter Chair David Priebe and assessments of reinsurance market conditions from Lara Mowery, Global Head of Distribution, and Dorothée Mélis-Moutafis, North American Broking Executive, who predicted hard but more manageable renewals for Jan. 1, 2024 than in 2023, as well as continued constraints on lower-layer capacity and aggregates. A Carrier Management report on the remainder of virtual briefing will be published soon.