Climate change is making secondary perils worse: Swiss Re

Thanks to climate change, so-called “secondary perils” are a least as threatening to global property and casualty insurers as primary perils such as earthquakes or hurricanes, according to the latest sigma study published by Swiss Re.

Secondary perils are typically more frequent than primary perils and are not modeled; they can be the spin-off effect of primary perils. Examples of secondary perils include river floods, torrential rainfall, landslides, thunderstorms, winter storms (excluding Europe), snow and ice storms, drought, and wildfires.

Insured losses due to natural and human-made catastrophes cost the global P&C industry US$56 billion in 2019, Swiss Re estimated in its most recent sigma report. Hurricane Dorian, which hit the Bahamas and North Carolina in the fall before sweeping through Atlantic Canada, accounted for $US4.5 billion of the global insured damage estimates. (Cat modeller RMS estimated in September that wind damage associated with Dorian in Canada would be less than US$500 million, although a final tally for insured damage in Canada due to Dorian is not yet publicly available.)

“Together, secondary perils are estimated to comprise more than 50% of this year’s global insured losses from natural catastrophes, demonstrating once again the very significant impact these events can inflict on societies,” Swiss Re reported in its most recent edition of sigma, published in December. “Climate change is leading to more frequent and more severe secondary peril events, which manifest in different ways: more local flooding, torrential rains, prolonged drought, severe wildfires and other extreme weather events.”

More scientific evidence exists that climate change affects the frequency and severity of secondary peril events today, “warranting more focus for research,” says Martin Bertogg, head of catastrophe perils at the Swiss Re Institute. He added that scientific research on the affect of climate change on primary perils such as typhoons or hurricanes is “far less conclusive.”

In addition to climate change, “macro risk factors like rapidly growing populations and property values in exposed areas contribute to the increase in losses resulting from natural catastrophes globally, making past experience a less definite predictor for future losses,” Bertogg said, commenting on the trends affecting the global insured losses.

Swiss Re’s figures suggest that global catastrophes in 2019 didn’t hit the industry as badly as in previous years. For example, this year’s global Cat losses were below the previous 10-year annual average of $US75 billion, and 40% below the US$93 billion in insured losses recorded in 2018. The California wildfires made up a significant chunk of the damage losses paid by the global P&C insurance industry in 2018.