Events such as wildfires and floods, so-called secondary perils for catastrophe risk re/insurers, constituted some 62% of insured losses from natural catastrophes in 2018, and more than 50% the previous year
The threat posed by secondary perils is the subject of the Swiss Re Institute’s latest Sigma report.
The reinsurer’s research arm defined these so-called secondary perils for catastrophe risk re/insurers as independent small- to mid-sized events, or a secondary effect of a primary peril.
Combined re/insured natural catastrophe losses for 2017-2018 were $219bn, the highest ever over a two-year period.
In 2018, secondary perils constituted 62% of insured losses from natural catastrophes, and contributed more than 50% the previous year.
The Swiss Re Institute expects losses from secondary perils will rise due to growing assets in areas exposed to more extreme weather conditions.
Insurers need to focus more on primary and secondary perils to be able to underwrite catastrophe business sustainably and build global resilience, the reinsurer emphasised.
The risks posed by secondary perils have been underestimated because their impact is masked by the losses inflicted by primary events, as was the case in 2017 with Hurricanes Harvey, Irma and Maria, Swiss Re suggested.
“Large losses from secondary perils are occurring more regularly”, said Edouard Schmid, Swiss Re’s group chief underwriting officer.
“This is a trend the insurance industry must act on so that we can continue to underwrite catastrophe business sustainably.”
The single largest insurance loss-event of 2018 was Camp Fire in California at $12bn.
Other major secondary peril events last year included a hail storm in Sydney in December, and the secondary-effect flooding across the Carolinas in the US in the aftermath of Hurricane Florence in September.
Losses from secondary perils have been rising due to rapid development in areas exposed to severe weather and warmer temperatures, and we expect this trend to continue, the reinsurer said.
While the probability outlook for more extreme primary catastrophes like hurricanes due to climate change remains uncertain, Swiss Re noted more extreme weather conditions and more frequent occurrence of resulting secondary perils is already reality in many places across the world.
Schmid added: “Secondary peril-losses will accelerate due to ongoing urbanisation, also in areas exposed to flooding such as along coast lines and in river plains, development in areas vulnerable to fire risk like wildland-urban interface, and also because of long-term climate change projections.”