Loss creep refers to increasing loss estimates and reported losses from previous loss events, such as a large hurricane.
Significant loss creep occurred following the impact of hurricane Irma in 2017, the creeping loss estimates of the California wildfires, and typhoon Jebi in Japan.
The impact of 2017 and 2018 catastrophe losses hit the ILS fund market, with loss creep from these catastrophe events damaging the returns of both the private ILS and cat bond fund market.
Typically loss creep occurs where catastrophe or man-made loss events are particularly complex in nature, severe, or if there is cause for social inflation and elevated loss adjustment expense.
Where natural catastrophe insurance and reinsurance losses are concerned, loss creep can make the difference between an event having a tail and not. This is especially so in the case of some earthquake events, where loss estimates and reported losses can continue to rise for some years after an event occurred.
In recent history (as of 2019) hurricane Irma and typhoon Jebi have provided the best examples of loss creep impacting insurance, reinsurance and insurance-linked securities (ILS) interests. Irma for the social inflation aspects of assignment of benefits (AOB) and claims practices in Florida, Jebi for inflation effects on loss adjustment expenses and due to significant demand surge.