By Akankshita Mukhopadhya— Aon Reinsurance Solutions’ Global Head of Analytics, Paul Shedden, stated that insurers are faced with the primary challenge of defining their own view on natural catastrophe risks amidst the escalating volatility of such events.

“2022 was another big year for catastrophe losses. Insured losses totalled $132 billion in 2022, 57% above the 21st century average, and the third consecutive year in which global insured losses surpassed $100 billion,” Shedden said in a report named “Climate uncertainty calls for custom view of risk” on LinkedIn.

Shedden added: “It was also the sixth consecutive year of above average catastrophe losses, resulting in a cumulative $794 billion in natural catastrophe losses since 2017.”

The reinsurance market experienced a significant adjustment during the January 2023 renewals due to the compounding effect of losses and concerns for climate change and extreme weather events.

To address increased volatility, a deeper understanding of perils and loss drivers is necessary to identify trends and explore the impact of climate change and socio-economic factors on natural disasters globally and regionally, Shedden explained.

The Aon Catastrophe Insight data reveals that tropical cyclones remain the costliest peril globally on a per-event basis, but the aggregated losses from secondary perils outpaced their cumulative costs.

“Cumulative insured losses from secondary perils since 2000 totaled $1.11 trillion, compared with $876 billion from primary perils.”

Severe convective storm events have caused a significantly greater number of billion-dollar losses since 2000 compared to other perils. With a total cost of $539 billion for insurers since then, severe convective storm ranks as the second most expensive peril, after tropical cyclones.

Although European windstorms are considered the primary peril in the region and have historically caused the costliest individual events, severe convective storms have been the costliest peril overall in Europe for seven out of the last 10 years, outpacing windstorms cumulatively in nine out of 10 years, Shedden noted.

To effectively manage risks, insurers must develop their own risk assessment strategies and allocate resources towards staying updated on scientific advancements and analytics. The biggest challenge is turning climate insights into actions.

The insurance industry needs to use climate science and analytics to understand the drivers of loss and the potential future implications of climate change. The industry needs to continually push the boundaries of climate science and modelling to create actionable insights and deploy them in underwriting, reinsurance, and risk management.