The regularity of severe weather and fire events across the US last year led to the US natural hazard & fire insurance market paying out more in claims than it received in premiums in 2020. As wildfires continue to rage in California and the recently published U.N. Intergovernmental Panel on Climate Change (IPCC) report warning of ‘code red for humanity’ with increasingly extreme heatwaves, droughts and flooding becoming the norm over the next decade the current trend of increased pay outs is likely to continue at an unsustainable level, says GlobalData a leading data and analytics company.
GlobalData’s recent report, ‘Climate Change and its Impact on Insurance Market – Thematic Research’ reveals that the US insurance market received $58bn in fire and natural hazard premiums in 2020, while it paid out $59bn in the same year driven by the regularity of severe weather events across the country. This included wildfires in California, hurricanes in the South and severe thunderstorms in the Midwest in 2020.
The US is already the biggest natural hazard & fire insurance market in the world for both incoming premiums and outgoing claims, so the ability of customers to keep up with ever-increasing premiums to cover the anticipated escalation in claims over the next decade is questionable.
Ben Carey-Evans, Insurance Analyst at GlobalData comments: “The immediate concern for the insurance industry (and people living in areas of high risk) is whether they are becoming uninsurable. This could be disastrous for homeowners, who will have to take on the risk themselves and are likely to see the value of their homes plummet. This is likely to be a problem replicated around the world, whether it is areas at similar risk in Australia or places at risk of flooding.”
Climate change action is now an essential part of an insurer’s overall strategy. Initially it may have been viewed as positive corporate social responsibility, but the ever-increasing nature of severe weather events around the world highlights how important making changes is to the insurance industry.
Carey-Evans adds. “The increased need for climate change-related insurance is a major challenge for the insurance industry, because the increase of severe weather events will lead to more claims and the premium levels required to cover this increased risk could make large areas of land and the properties that occupy it uninsurable.”
