Global reinsurance giant Munich Re has estimated that catastrophe losses affecting the insurance industry globally cost it just $15 billion in the first-half of 2019, below the long-term average.
Economic losses from natural catastrophes around the world in the first-half of the year are pegged much higher, at $42 billion, meaning that the insurance and reinsurance industry only covered around one-third of the costs of disasters so far this year.
Munich Re’s figures are a good deal lower than insurance and reinsurance broker Aon’s, who recently put industry insured catastrophe and severe weather losses for the first-half at $20 billion.
The first-half of the year reinforced the significant urgency in building resilience and expanding insurance and reinsurance penetration, as so much of the global disaster toll went uninsured.
While events in developing regions caused significant death and destruction, the highest costs and especially the insurance industry impact were in the United States from tornadoes, Europe from severe thunderstorms and Australia from floods.
Torsten Jeworrek, member of the Board of Management at Munich Re and responsible for its reinsurance business explained, “When looking at the first half of 2019, disasters in poorer countries are worrying because the victims so often have virtually no insurance cover. Cyclone Idai, which hit Mozambique, was in relative terms worse for that country than the Tohoku earthquake – the costliest natural disaster on record – was for Japan in 2011. Almost nothing was insured, so that very few of the people affected were able to obtain prompt financial assistance for the loss of their belongings. Experience has shown that such countries often take years to recover from disasters. The insurance industry therefore needs to promote partnerships with governments and development banks to provide greater assistance to countries like Mozambique.”
Munich re cites “random factors” as the reason that global losses fell below the long-term average for the insurance and reinsurance industry.
The reinsurer said that 370 loss events produced economic costs of US $ 42 billion, lower than the 30-year average of US$ 69bn. But this figure does not include the severe floods in southeast China, which began in June and reportedly caused billions of dollars in damage.
Insurance industry losses of $15 billion are also below the long-term average of $18 billion.
The most costly single event for the insurance and reinsurance industry was May outbreaks of thunderstorms and tornadoes in the Midwestern U.S., with economic losses of $3.3 billion and insured costs of around $2.5 billion.
A series of severe convective storms during the first six months of 2019 in the United States drove losses amounting to nearly $7.5 billion, Munich Re said.
For many of the loss events catalogued, the insured portion of the impact was very small given low insurance penetration across many regions of the globe.
Ernst Rauch, Chief Climate and Geoscientist at Munich Re, commented on the need for a concerted effort to add risk transfer protection in some emerging regions, “In the Caribbean, for example, insurance solutions in cooperation with governments and development banks have been able to provide financial assistance before international aid programmes can get off the ground. A similar solution would also make sense for Mozambique. But it is absolutely essential to take more effective preventive measures in industrialised countries as well. We are working systematically at improving our analysis tools so that we can assess risks more accurately and then develop new solutions to allow us to assume risks.”
Heatwaves and severe hailstorms across Europe underscored the exposure in this region as well, with the extreme heat presenting particular concerns.
Ernst Rauch commented, “A number of scientific studies indicate that heatwaves are increasing due to climate change, and hailstorms as well according to the most recent studies. In view of the loss potentials and the increase in exposed assets, it is very important that insurers are aware of these changes. In any event, measures to reduce vulnerability to losses make good sense because we must assume that this trend will continue in the coming years and decades.”
The level of industry losses suffered was not significant though, which will only serve to keep European reinsurance rates depressed.
Of course, first-half catastrophe activity can tend to be much lower, while the second-half features most of the hurricane and typhoon related threat that can be the driver of much bigger impacts for the re/insurance industry. Hence it’s important not to be complacent after a quieter start to 2019.