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A new report estimated that the average annual loss from global natural catastrophes reached a record high of $151B, driven by rapid urban expansion, climate change, and increased frequency of events coupled with economic and social inflation.
Average exposure growth is expected to be 7.2%, including growth in property replacement values from new construction, according to the 2024 Global Modeled Catastrophe Losses Report from Verisk (NASDAQ:VRSK), a data analytics provider. The report supports the global insurance and reinsurance industry and represents the scale of potential loss that can be expected, on average, in any given year.
“While actual annual insured losses over the past five years have been high, averaging $106B, they should not be seen as outliers,” said Rob Newbold, president of Verisk Extreme Event Solutions. “Our models show the insurance industry should be prepared to experience total annual insured losses from natural catastrophes of $151B on average, and well more than that in large loss years.”
Urban expansion and exposure are the primary drivers of modeled loss, the report noted. More than half of the world’s population lives in urban areas. In developing countries, new cities continue to form, while others expand outward, Verisk said.
Meanwhile, exposure increases and insured losses are likely to grow over time because of rising property exposure in hazardous areas. In addition, global inflation has boosted property exposure value, which in turn helps drive increases in insured losses, the report said.
In 2023, non-hurricane and non-earthquake loss activity drove the increase in insured losses. The U.S. experienced a record-setting severe thunderstorm season, with losses contributing more than $57B to total insured losses. That compares with the average annual loss of ~$39B over the last five years, which increased from ~$23B in the previous five-year period.
In the past three years, the SPDR S&P Insurance ETF (KIE) rose 43%, outpacing the S&P 500’s 25% increase.
Relevant tickers include: Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), Progressive (NYSE:PGR), Allstate (NYSE:ALL), Hartford Financial (NYSE:HIG), Hanover Insurance (NYSE:THG), Reinsurance Group of America (NYSE:RGA), Everest Group (NYSE:EG), Renaissance Holdings (NYSE:RNR), Arch Capital Group (NASDAQ:ACGL), and Oxbridge Re Holdings (NASDAQ:OXBR).
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