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Swiss Re, one of the world’s biggest reinsurers, has said the industry significantly underestimated the fallout from recent natural disasters across Europe and warned that some areas have become “uninsurable”.
“Whether it’s the Turkey quake . . . or the floods in Germany or the hailstorms in Italy, models were off by factors as opposed to 10 or 20 per cent,” said Gianfranco Lot, the group’s chief underwriting officer for property and casualty reinsurance.
Global insured losses from natural catastrophes exceeded $100bn for the fourth consecutive year in 2023, the group has said, including $6.2bn of losses from the earthquake that hit Turkey.
Lot told the FT Global Insurance Summit on Thursday that Swiss Re was investing heavily on feeding more data into its hundreds of natural catastrophe models. This could make it “more accurate in predicting the impact of these scenarios and events”.
Swiss Re said that underestimating the cost of extreme weather events was “an industry-wide issue and comes down to a lack of data about the up-to-date exposure and the current risk values”.
Global warming has made extreme weather events such as storms, flooding and wildfire more frequent and more intense, pushing up costs for the insurance and reinsurance industry.
Millions of homeowners around the world are having to pay higher premiums for cover or are finding it difficult to obtain insurance at all, raising questions about how much governments should intervene to prevent the costs of climate change from being passed directly to consumers.
Lot said that in areas that had become uninsurable because of high risk, “that’s where government intervention is necessary and very very helpful”.
The debate about who pays to repair damage from disasters has been particularly contentious in the US, as some home insurers have started to pull out of the highest risk areas such as parts of California.
FT series: the Uninsurable World
The FT is running a series about the effects of climate change on insurance.
Read the first article about the cost to homeowners here.
Read part two about how the insurance industry fell behind here.
Home insurers in the US often have to get pricing changes signed off by local regulators, leading to accusations from the industry that they are unable to keep up with the rising cost of claims.
A senior executive from the American Property Casualty Insurance Association told the summit that the decision by some US insurers to restrict coverage for homes in states that were more regularly hit by natural disasters had been caused by “excessive government interference”.
Robert Gordon said that intervention to stop the cost of home insurance from rising too fast had “critically injured” parts of the insurance market.
Higher insurance costs could help dissuade people from buying or building homes in areas more vulnerable to fire and flooding, he said.
“That’s where you’re seeing in the US, the markets where you’re having a real availability crisis, it’s because the government is trying to suppress those [premiums].”
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