How Natural Disasters are Impacting the Insurance Market

How Natural Disasters are Impacting the Insurance Market

$268 Billion = Total economic and insured loss estimate for 2022’s natural disasters

Approaching $115 Billion = Recent estimate for insured losses from 2022 natural disasters1

Environmental changes are reshaping the world as we know it, and insurance carriers are struggling to keep up. Additionally, rapid urbanization and wealth accumulation in disaster prone areas only makes losses after severe natural disasters worse with every passing year. Property insurance carriers are met with the challenge of being required to adapt to these unpredictable loss patterns.

Learn more about how these conditions are potentially impacting your insurance program in our white paper, “Making a Soft Landing in a Hard Market”.

In the crosshairs of disaster

Unfortunately, the United States dominates global catastrophe loss patterns, accounting for over half of global economic losses in both 2021 and 2022. Why is this? In 2022 alone, the U.S. has experienced 15 separate billion-dollar weather and climate disaster events and, over the last decade, extreme weather events have continued to pummel the United States.2

  • Hurricane Ida in 2021 – costliest natural disaster event globally at the time with total losses of $65 billion3
  • Hurricane Ian in 2022 – early estimates project losses as high as $74 billion
  • 8 of the 10 costliest wildfires in recorded history took place in the U.S. over last decade – with insured losses of $92.7 billion4
  • Severe windstorms wreaked $259.9 billion in total losses from 2010 to 20225
  • Costliest U.S. winter storm event on record in late 2021 through early 2022 accounted for $25.2 billion in total losses6
  • Annual U.S. flood losses are predicted to jump 26% over the next three decades, from $32.1 billion to $40.6 billion by 20507

Beyond the economic fallout that comes after natural disasters, the insurance industry is also coming to a head with multiple other challenges: high inflation, an unprecedented supply chain crisis, labor issues, and the threat of recession, which amount to elevated loss severity because repair and replacement work becomes more expensive.

Insurers – economic first responders following catastrophic events

Insurers help speed up recovery efforts by providing post-disaster funding for rebuilding efforts and financial protection to insureds. However, carriers can only deliver on this promise if they’re able to remain solvent.

Primary insurers are struggling with underwriting losses — $24.3 billion net losses in the first nine months of 2022.8 Carriers are trying to adapt their underwriting strategies and develop climate modeling that reflects the nature of the interconnected weather events that are negatively impacting their bottom line.

How are commercial property insurance carriers potentially reacting? They are:

  • Retreating from risky markets
  • Requiring more accurate asset valuation
  • Increasing underwriting scrutiny
  • Shifting more risk to insureds

Combine claims from multiple recent global catastrophic events with sustained high inflation, the effects of climate change, and oscillating repair and construction costs, and we see why the reinsurance market has also been impacted. Compounding the capital challenges for reinsurers, additional capital is unlikely to enter reinsurance market

How can you go from powerless to powerful?

That’s right – not all hope is lost. Finding property coverage that financially protects your business, and at the right price, from natural disasters is going to be challenging in 2023, but securing the best relationships with carriers, underwriters, and an experienced broker can help you make a soft landing in this hard market.

Dive deeper into the numbers, trends, and strategies we recommend to achieve the best results in this hard property insurance market – read our latest whitepaper here.

Disclaimer

This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The content of this document is made available on an “as is” basis, without warranty of any kind. Baldwin Risk Partners, LLC (“BRP”), its affiliates, and subsidiaries do not guarantee that this information is, or can be relied on for, compliance with any law or regulation, assurance against preventable losses, or freedom from legal liability. This publication is not intended to be legal, underwriting, or any other type of professional advice. BRP does not guarantee any particular outcome and makes no commitment to update any information herein or remove any items that are no longer accurate or complete. Furthermore, BRP does not assume any liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Persons requiring advice should always consult an independent adviser.

Baldwin Risk Partners, LLC offers insurance services through one or more of its insurance licensed entities, including but not limited to [use full legal entity name AHT, RogersGray, Insgroup, Burnham WGB, BKS]. Each of the entities may be known by one or more of the logos displayed; all insurance commerce is only conducted through BRP insurance licensed entities. This material is not an offer to sell insurance.

1 Swiss Re, “Hurricane Ian drives natural catastrophe year to-date insured losses to USD 115 billion, Swiss Re Institute estimates”

2 National Centers for Environmental Information, “Billion-Dollar Weather and Climate Disasters”

3 Munich Re, “Hurricanes, cold waves, tornadoes: Weather disasters in USA dominate natural disaster losses in 2021”

4 Insurance Information Institute, “Facts + Statistics: Wildfires”

5 The Washington Post, “December tornado record crushed by historic onslaught of storms in U.S.”

6 Homeland Security Digital Library, “Timeline: 2021 Winter Storm”

7 Nature.com, “Inequitable patterns of US flood risk in the Anthropocene”

8 Programbusiness.com, “AM Best: U.S. P/C industry recorded a $24.3B underwriting loss in first 9 months”

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This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The content of this document is made available on an “as is” basis, without warranty of any kind. Baldwin Risk Partners, LLC (“BRP”), its affiliates, and subsidiaries do not guarantee that this information is, or can be relied on for, compliance with any law or regulation, assurance against preventable losses, or freedom from legal liability. This publication is not intended to be legal, underwriting, or any other type of professional advice. BRP does not guarantee any particular outcome and makes no commitment to update any information herein or remove any items that are no longer accurate or complete. Furthermore, BRP does not assume any liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Persons requiring advice should always consult an independent adviser.

Baldwin Risk Partners, LLC offers insurance services through one or more of its insurance licensed entities. Each of the entities may be known by one or more of the logos displayed; all insurance commerce is only conducted through BRP insurance licensed entities. This material is not an offer to sell insurance.

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