Verisk 2024 Global Modelled Catastrophe Losses

Verisk, a leading data analytics provider, has recently released its 2024 Global Modelled Catastrophe Losses report, highlighting a significant uptick in the average annual loss (AAL) from natural catastrophes. The report estimates the global modelled insured AAL at USD$151bn, a stark increase from previous years For more insights into Verisk's recent performance and how data analytics are driving the insurance industry's risk management strategies, you can check Verisk Q1 Results: Strong Performance in Analytics​.

The rise in modelled losses is a clear indication of the growing impact of climate change, where models show that climate variability and rapid urban expansion are key drivers of this trend.

The report underscores the importance of understanding exceedance probability (EP) metrics, which provide insight into the likelihood of significant loss events. For instance, the 1% EP, or the 100-year return period, is now estimated at USD$400bn in insured losses globally. This metric is crucial for insurers as it helps them prepare for worst-case scenarios.

The EP metrics are not just numbers; they are a wake-up call for the industry to adopt more robust risk management strategies.

Technical Developments in Risk Modelling

One of the most significant advancements in risk modelling is the integration of high-resolution climate models. These models allow insurers to simulate the potential impacts of climate change on various perils, including hurricanes, wildfires, and floods. Verisk's collaboration with the scientific community, including the Verisk Climate Advisory Council, has been instrumental in refining these models.

Next-generation models are now climate-ready, offering a sharper assessment of risks in today's climate. The report points to exposure growth as a significant factor in rising insured losses, with rapid urban expansion, especially in high-risk areas, driving up the value of properties vulnerable to natural disasters. This is compounded by economic and social inflation, which further escalates the potential costs of losses.

To stay ahead of these evolving risks, insurers must continuously update their exposure data. Verisk's Industry Exposure Database plays a crucial role, in delivering comprehensive and current data for most modelled countries.

The Impact of Climate Change

Climate change is increasingly influencing the frequency and severity of natural disasters, with its impact being more evident in events like wildfires and floods, while the effects of severe thunderstorms remain less understood. Verisk's models suggest that climate change contributes to roughly 1% of the annual rise in losses—a figure expected to increase in the coming years.

The report also highlights the significant protection gap between insured and total economic losses. In North America, around 51% of economic losses from natural disasters are covered by insurance, whereas only 12% are insured in Asia and 24% in Latin America. This underscores the urgent need for additional risk financing solutions, especially in regions with low insurance coverage.

Catastrophe modelling plays a vital role in guiding emergency management and risk mitigation efforts, pushing global resilience against the growing threat of natural disasters.

Future Directions

The insurance industry is confronting the challenge of adapting to a volatile risk environment, with the looming threat of global-scale tail loss scenarios—multiple high-impact events occurring within a single year. Verisk's simulations indicate that such scenarios could arise from various event combinations, highlighting the urgent need for robust and comprehensive risk management strategies.

While preparing for these complex risks, the continued threat of hurricanes and earthquakes, which can cause catastrophic damage with little warning, remains a significant concern. As the industry navigates these challenges, insurtech firms are playing a pivotal role in driving innovation by developing advanced risk models. Through the use of data analytics and climate science, these firms are helping insurers better understand and manage future risks, equipping the industry with the tools necessary to face an increasingly uncertain future.

Key stats from the report

• Global modelled insured average annual loss (AAL) from natural catastrophes is estimated at USD$151bn, with USD$119bn attributed to non-crop losses.
• The U.S. experienced a record-setting severe thunderstorm season in 2023, contributing USD$5bn to total insured losses.
• The estimated global economic AAL (including insured and uninsured losses) is more than USD$470bn.
• For 2024, the insured aggregate loss at a 1% exceedance probability (100-year return period) is USD$400bn.
• Global exposure growth averaged 7.2% annually between 2019 and 2023, with Asia leading at 8.2%.
• Regional insured loss breakdown for a 100-year return period: North America (USD$333.7bn), Asia (USD$71.0bn), Europe (USD$79.2bn), Latin America (USD$56.3bn), and Oceania (USD$24.7bn).
• Contribution by peril to global insured AAL: Severe Storm (32%), Tropical Cyclone (24%), Crop (21%), Earthquake (10%), Flood (7%), and Wildfire (6%).
• Climate change contributes approximately a 1% annual increase in losses, expected to grow significantly in the coming decades.
• U.S. wildfire AAL doubled in 2024 to USD$9.1bn, with the 100-year loss increasing to USD$47bn.
• On average, insured losses account for less than one-third of global economic losses, emphasising the large protection gap.

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