‘Holistic adaptation roadmaps that cut across all levels of society and sectors are vitally needed,’ says UK and Ireland chief executive
Insurance cannot be viewed as an unlimited solution to the impacts of climate change, said Swiss Re’s chief executive for the UK and Ireland.
Jason Richards’ comments came as the insured global costs of natural catastrophes in 2022 exceeded $100bn for the second consecutive year.
Swiss Re’s lastest sigma report found that the costs of natural catastrophes rose following Hurricane Ian in Florida, record breaking losses from hailstorms in France, floods in Australia and South Africa, winter storms in Europe and the US as well as droughts in Europe, China and the Americas.
These events contributed to the continuation of a trend that has seen between 5% and 7% average year-on-year increases in insured losses over the past three decades.
Richards said that the past year had included a range of new perils that had been driven by the country’s changing climate.
“Though the UK’s protection gap from natural catastrophes might be low when compared with other regions, the 2022 losses serve as a reminder of the ever-present risk of winter storms and flooding, but also the growing risk of droughts,” he explained.
“Known for its wet and windy weather, windstorms and floods are both significant contributors to the loss figures we see in the UK today.
“At the same time, higher average temperatures resulting from climate change are increasing the intensity and frequency of heatwaves during the summer and the volatility of existing weather patterns in the winter – last summer saw the UK recording its highest temperature ever at 40.3°C.”
Richards added that the UK had experienced its driest February for 30 years in 2023, a trend that he predicted to become more pronounced over the coming years.
He said: “This is a problem as ground and soil hardened by drought will be less absorbent during subsequent instances of heavy rainfall, triggering flash floods as seen in parts of the UK following July’s heatwave.”
With the damage caused by natural, climate-related catastrophes on the rise, Richards warned that insurers and reinsurers could not be seen as a solution to the ever-increasing risks.
“While the (re)insurance sector has a key role to play in boosting resilience against such events, its ability to curb resulting losses has its limits,” he explained.
“Insurance is no substitute for a robust climate mitigation plan and other adaptation measures to lessen risks.
“Holistic adaptation roadmaps that cut across all levels of society and sectors are vitally needed and the public sector has a critical role to play in enabling these.
“It’s then down to insurers and other parties to embrace these measures and further scale, maintain and embed the appropriate management actions.”
Swiss Re’s report said that demand for cover had grown as natural disasters continued to wreak property damage across the world.
At the same time, inflation has surged over the last two years, averaging 7% in advanced economies and 9% in emerging economies in 2022.
The effect of high prices has been to increase the nominal value of buildings, vehicles and other insurable assets, thus pushing up insurance claims for damage caused by natural catastrophes.
“The magnitude of losses in 2022 is not a story of exceptional natural hazards, but rather a picture of growing property exposure, accentuated by exceptional inflation”, said Martin Bertogg, head of catastrophe perils at Swiss Re.
“While inflation may subside, increasing value concentration in areas vulnerable to natural catastrophes remains a key driver for increasing losses.
“For our industry, this is a call both to reflect the latest exposure even more carefully in risk assessments, while continuing to support society in being better prepared.”
The reinsurer’s group chief economist said the impact of the economic challenges affecting the world looked likely to continue and would exacerbate the effects of natural peril events.
“The economic storm is not over and interest rates will likely have to increase further given existing inflation pressure,” explained Jérôme Jean Haegeli.
“This means higher financing costs and, as a result, capacity providers are likely to remain more cautious in deploying capital for a number of reasons, including risk assessment and loss experience.
“In our view, as higher exposures encounter shrinking risk appetite, momentum for rising prices, higher retentions and tighter terms and conditions will likely continue.”