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It has been a taxing few years for the global insurance industry. 2018 was the fourth costliest year on record from a claims and losses perspective – a stat made even more striking by the fact that it followed the costliest year ever for the insurance industry. While loss estimations vary, experts predict the global insurance industry faced total losses of approximately $125 billion in 2017 and 2018 combined.
Much of that loss activity can be attributed to mean old Mother Nature. In 2017, there were three defining natural catastrophe losses – Hurricanes Harvey, Irma and Maria. While the Atlantic Hurricane season was slightly less severe in 2018, Typhoon Jebi in Japan and the wildfires in the western states of the USA all cut holes in insurers’ pockets by driving multiple high-severity losses.
One of the differences between these two costly natural catastrophe years was that 2018 saw an increase in smaller, weather-related loss events. Events like snowstorms in the North East and tornadoes in the central alley, while not always huge in terms of scale, led to a severe accumulation which hit the insurance industry hard.
It’s easy to look at the events of the past two years and lay the blame at the door of climate change - but that might be a little simplistic. To clear the air, Insurance Business caught up with Ivan Gonzalez, CEO North America, Swiss Re Corporate Solutions, to see what the reinsurance giant thinks about the climate change issue.
“Climate change is a topic we’ve been discussing very publicly since the late 1980s, early 1990s,” he said. “We’ve been in the business for almost 155-years, so we’ve got a lot of data in terms of our business and how we see the risk landscape evolving – and climate is obviously a big part of that. We’re a little bit shy of necessarily saying that the last two years of natural catastrophe activity is 100% related to climate change.
“You could argue that before 2017, we had four or five years of relatively benign natural catastrophe activity, and so we try to stay away from that correlation of saying these events are 100% due to climate. That being said, what we have seen is an increase in the frequency of some of these events. Furthermore, the level of social economic development we’ve seen over the last 20-years has been such that, all of a sudden, we’re much more exposed to some of these events.”
To Gonzalez’s point, wildfires didn’t start out west a couple of years ago. This has been a peril for a very long time. However, if there was a wildfire in California in the mid-1980s in the same place as the fires in 2018, the damage would probably have been much less significant because fewer people and fewer businesses would have been situated there.
“Now what has happened is that you have a lot of people who have moved to live in these high-risk areas, you have a lot of economic activity, and local infrastructure like schools and hospitals, which means the economic losses are much higher if an event happens. So, one might ask: Is the loss severity linked to climate or it is related to people living in these perilous areas?” Gonzalez commented.
“Both from an individual standpoint, but also from an enterprise standpoint, people need to have a much higher awareness of the risk management landscape. If they want to build homes or enterprises in high-risk zones, they probably need to have some risk management and contingency plans in place.”
