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The global insurance industry has racked up $50bn in losses from natural catastrophes in the worst start to a year since 2011, highlighting the challenge the sector faces from global warming.
As well as climate change leading to more extreme weather events, the first-half losses were driven by the expansion of urban areas and the rising cost of insuring them, according to a widely watched study by reinsurance group Swiss Re published on Wednesday.
“The effects of climate change can already be seen in certain perils like heatwaves, droughts, floods and extreme precipitation,” said Jérôme Jean Haegeli, the reinsurer’s chief economist.
He said it was “high time to invest in more climate adaptation”, saying that “protective measures” needed to be taken for insurance to remain affordable for properties that were being built in at-risk areas.
So-called convective storms, characterised by heavy rain, strong winds and sharp temperature changes, accounted for more than two-thirds of the losses in the first half of the year and have become “one of the dominant global drivers” of insurance claims, Swiss Re said.
The $35bn in losses from such events in the six months to the end of June compared with an annual average of $18bn over the past decade. Floods in New Zealand and Europe also contributed to the $50bn total.
Coming shortly before the start of hurricane season, the losses will deepen concerns over the industry’s ability to keep up with natural catastrophes — with annual claims exceeding $100bn seen as a “new normal” for the sector. The arrival of the El Niño weather phenomenon is expected to fuel yet-higher global temperatures.
In response to the growing bill from natural catastrophes — propelled by inflation in material and labour costs — reinsurers have demanded much higher prices for cover. In its half-year results on Wednesday, FTSE 100 insurer Hiscox said natural catastrophe reinsurance prices in North America were up 43 per cent.
The rising cost of reinsurance is squeezing direct insurers. US underwriter State Farm cited a “challenging reinsurance market” as well as “rapidly growing catastrophe exposure” when it announced in May it would cease writing homeowners insurance for new customers in California.
“We are part of a system that needs to be economically viable, and if society decides to do certain things that lead to climate change, this needs to be priced,” said Swiss Re’s chief executive Christian Mumenthaler at the publication of its half-year results last week. It increased prices for property and catastrophe reinsurance by a fifth at the July renewals.
“It is our obligation to give pricing signals back to society through the primary insurance carriers,” Mumenthaler told the Financial Times.
Overall economic losses from natural catastrophes, which include those that are not insured, came in at $120bn for the first half, with February’s earthquake in Turkey and Syria a significant contributor.
That total was more than 40 per cent higher than the average over the past decade, and close to the $123bn in the first half of last year.