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Global extreme events to cost insurers $120bn

A report by Verisk Extreme Event Solutions estimates that on an annual average basis, catastrophes around the world are expected to cause about $123bn in insured losses compared to an average of $74bn in actual losses over the past 10 years.

The 2022 Global Modelled Catastrophe Losses Report details major global financial loss metrics based on Verisk’s latest suite of catastrophe models, which generate an industry exceedance probability (EP) curve that helps put years with high insured losses – like 2011 and 2017 - into context.

Verisk Extreme Event Solutions president Bill Churney said that the most significant factor driving increased catastrophe losses over the past few years is the rise in exposure values and replacement costs. Both are represented by continued construction in high-hazard areas as well as high levels of inflation that are driving up repair and rebuild costs.

“For this reason, it’s important for insurers to regularly reassess their exposures, particularly in the most vulnerable urban and coastal areas. Updating the property replacement values used in catastrophe modelling and other processes helps to ensure a more informed view of risk,” he said.

It is also important to consider the uncertainty and natural variability associated with global catastrophe losses. The current five-year actual loss period has immediately followed a 10-year period of lower levels of loss highlighted by fewer loss-causing hurricanes in the Atlantic basin. Far larger years of insured losses can and will likely occur in today’s climatic conditions, and while climate change is contributing to increased catastrophe losses, it is to a lesser degree than the growth in the number and value of exposed properties.

Verisk’s models estimate a more than 40% chance of experiencing a five-year average loss in excess of $100bn, meaning the last five years should not be viewed as out of the ordinary. Also, the models show at least a 50% chance of experiencing a single year in the next decade with insured losses in excess of $200bn.



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