European insurance companies point to rising global price of insured losses due to extreme weather conditions
20 Jan 2025 by The Water Diplomat
In an end of year article, Swiss Re, a leading global provider of insurance and reinsurance, reports that 2024 has featured broken records in many ways. With mean average temperature of 1.54°C above the pre-industrial average, 2024 is the hottest year on record, and it featured a string of natural catastrophes whose collective costs have been estimated at more than USD 135 billion. In the article, Balz Grollimund, Swiss Re's head for ‘Catastrophe Perils’, stated: "For the fifth consecutive year, insured losses from natural catastrophes break the USD-100-billion mark. Much of this increasing loss burden results from value concentration in urban areas, economic growth, and increasing rebuilding costs.”
Amongst the risks, floods in Europe and the United Arab Emirates accounted for insured losses of USD 13 billion: for instance, floods in the Gulf region disrupted the functioning of Dubai airport, Storm Boris caused major floods in Eastern Europe, and Spain experienced heavy rainfall and flash floods in October. The impact on insurance of flood risks is therefore rising globally, Swiss Re reports, with a noteworthy risk for urban areas whose drainage systems cannot cope with pluvial floods that result from extreme rainfall in a short period of time, resulting in rapid onset floods which affect different kinds of urban areas. However, it is also economic growth itself which is contributing to the rise in insured losses: Jérôme Jean Haegeli, Swiss Re's Group Chief Economist, stated: "Economic development continues to be the main driver of the rise in insured losses resulting from floods, but also other perils, seen over many decades. However, with natural catastrophe risks rising and higher price levels, the annual increase of 5–7% in insured losses will continue, and protection gaps could remain high”.
At least two thirds of the insured losses in 2024 losses are attributable to the US where the losses from two major hurricanes alone – hurricanes Helene and Milton - are pegged at some USD 50 billion. Additionally, 2024 featured a high frequency of severe convective thunderstorms, whose impacts were mostly felt in the United States. Although calculations are still underway, Insured losses from severe thunderstorms are expected to add more than USD 51 billion globally for 2024, making 2024 the second-highest loss after the record high of approximately USD 70 billion in 2023.
Balz Grollimund: “By favouring the conditions leading to many of this year's catastrophes, climate change is also playing an increasing role. This is why investing in mitigation and adaptation measures must become a priority."
Swiss Re estimates the total economic losses for 2023 at USD 302 billion and USD 320 billion in 2024 (an increase of 6% ), whereas the total insured losses have risen from USD 125 billion in 2023 to USD 144 billion in 2024 (an increase of 16%).
In parallel, the German reinsurance giant Munich Re reports that climate disasters accounted for 93 percent of total losses worldwide. Tropical storms cost the industry the most last year, especially hurricanes. The earthquake in Japan is next as the most expensive disaster of last year. Flooding in the Spanish region of Valencia caused the most damage in Europe, according to Munich Re. The earthquake in Japan is next as the most expensive disaster of last year. Flooding in the Spanish region of Valencia caused the most damage in Europe, according to Munich Re. The large wildfires currently raging in Los Angeles threaten to be among the costliest natural disasters in the US ever, with estimated damages in the tens of billions.
Munich Re is also using the figures to sound the alarm about climate change. "No year has made the consequences of climate change so painfully clear," the reinsurer writes, also pointing out that 2024 is the warmest year ever measured. According to Munich Re's climate science chief Tobias Grimm, all countries need to act, especially to protect those most vulnerable to natural disasters. "Our planet's weather machine is shifting into high gear. Everyone pays the price for weather extremes, but especially countries with less insurance or government support."
The upward trend in the frequency of natural disasters noted by the insurance companies is confirmed by the Global Natural Disaster Assessment 2023 report , although this report points out that in 2023 itself, the frequency of natural disasters was 3% less than the global average in the period since 1993. In 2023 it was the Asian region that the highest frequency of natural disasters, followed by South America and Africa. Asia was the continent with the largest number of deaths due to disasters, followed by Africa. Asia had the highest economic losses due to disasters. Developing countries were more affected by natural disasters than developed countries, mainly by floods, storms, and earthquakes.
In 2023, flood disasters were the most frequent with a total of 152 times, 3.5% more than the historical average, affecting the largest number of people at 32,392,800, 66% less than the historical average. The direct economic losses caused by storm disasters were the largest, at about USD 100.845 billion, 50% more than the historical average. The occurrence of landslides increased, but resulted in 30% fewer deaths, 35% less affected population than the historical average, and 100% lower direct economic loss.
The call of European insurance companies for all countries to act, especially to protect those most vulnerable to natural disasters, goes hand in hand with the goals of the United Nations Office for Disaster Risk Reduction (UNDRR). The implementation of the UNDRR’s Sendai Framework in 2015 was the first major agreement of the post-2015 development agenda and provides Member States with concrete actions to protect development gains from the risk of disaster. The Framework advocates for the substantial reduction of disaster risk and losses in lives, livelihoods, and health and in the economic, physical, social, cultural and environmental assets of persons, businesses, communities and countries.
Because climate extremes are becoming more frequent and intense, the need for accurate and timely information from climate services to inform decision making is becoming ever more important. At COP 29 in Bakoe, the World Meteorological Organisation (WMO) presented the 2024 edition of its State of Climate Services report. This report, which is an update of its 2023 report, analyses the state of climate services across the world - with a particular focus on the progress made in support of climate adaptation and mitigation actions around the world. The Water Diplomat reported on the State of Climate Services report last month.