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May 17, 2023

Is the World Becoming Uninsurable? The Impact of War and Climate Change

When it could be difficult to cover the cost of a potential loss out-of-pocket, you buy insurance to cover the risk. But what if insurers won’t offer coverage? As insurers and reinsurers react to rising claim costs, some are asking whether war and climate change are creating an uninsurable world.

Catastrophic Losses Are Skyrocketing

Weather and climate disasters in the U.S. have become much more expensive over the last five years. The National Oceanic and Atmospheric Administration (NOAA) keeps track of weather disasters with losses of $1 billion or more. Even after CPI adjustment to account for inflation, the number of these events has surged dramatically. Below you’ll see the average number of billion-dollar catastrophes per year for each time period:

  • 1980-1989: Average of 3.3 per year
  • 1990-1999: Average of 5.7 per year
  • 2000-2009: Average of 7 per year
  • 2010-2019: Average of 13.1 per year
  • 2018-2022: Average of 18 per year

In 2022, there were 18 separate events resulting in combined losses of $171.5 billion. Just a decade ago, this would have seemed outrageous – but these days, it doesn’t even break any records.

Swiss Re says natural disasters caused $275 billion in global economic losses in 2022, resulting in insured losses of $125 billion.

Geopolitical conflicts also resulted in major losses in 2022. S&P Global says insurers have struggled to quantify the losses associated with political risk and political violence, although they know these losses have been significant. As a result, insurers have had to adjust their strategies. For example, Swiss Re AG increased its Ukraine war reserve across property and casualty reinsurance and large global commercial insurance businesses from $283 million in the first quarter to $334 million in the fourth quarter of 2022.

Future Losses May Be Much Worse

Because of growing political tension and climate change, it seems likely that future losses could be much worse.

A Business Insider article lists five places where World War III could start during 2023. Ukraine tops the list, but Taiwan, Greece/Turkey, the Korean Peninsula, and China/India also appear. Even if conflict doesn’t reach the level of world war, the risk of rising conflict is real.

Predictions regarding climate change are also alarming. NOAA says the U.S. coastline is expected to rise 10 to 12 inches over the next 30 years and $106 billion worth of coastal property could be below sea level by 2050 if we continue on the current path. More severe hurricane activity could result in additional annual losses of $7.3 billion on average.

Insurers Are Already Experiencing an Underwriting Loss

Insurance companies are already struggling with rising losses. The Insurance Information Institute says the property and casualty insurance industry’s combined ratio for 2022 is estimated at 105.8. This is 6.3 points worse than the combined ratio for 2021. Anything over 100.0 signifies an underwriting loss. In addition to losses from natural disasters and political conflicts, insurers were dealing with inflation, social inflation, and other economic factors.

Losses have also impacted the reinsurance market. Insurance Journal says reinsurance rates for global property catastrophe were up 37% at January 2023 renewals.

Some Policyholders Are Struggling to Find Coverage

When insurers experience an underwriting loss, they need to increase their premiums, reduce their exposure to high risks, or both. In some areas, property owners are already facing large rate hikes and non-renewals.

In California, a moratorium on non-renewals has prevented homeowners insurance companies from canceling coverage in certain areas. Despite these protections, Property Casualty 360 says California could be facing an insurance crisis due to climate-related risks. Condominium owners in particular are having trouble securing coverage. When coverage is available, it often comes with drastically-higher premiums and lower coverage limits.

The problem is not limited to California. According to AP News, Florida’s property insurance market has also been volatile. Several insurance companies have closed recently and about a dozen have stopped writing new policies in the state – and that was before Hurricane Ian.

As losses continue to mount, stories of unaffordable rates and unobtainable coverage may become more common. The Climate Council says one in 25 Australian properties will be uninsurable by 2030 due to climate change and extreme weather risks. This will put 520,944 properties at risk.

You Need an Insurance Expert by Your Side

We’re not living in an uninsurable world yet, but securing adequate coverage is becoming more challenging. Heffernan Insurance Brokers can help you navigate the current insurance market and position your account for success. Contact us.

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