Disasters caused by climate change were costly for insurance companies in 2021 as well. Global insurance giants announced that insured losses caused by worldwide disasters will exceed hundreds of billions of dollars. Reinsurance costs are also expected to rise in 2022.
The climate crisis is moving towards a point of no return for the world and humanity. The warming of the world with each passing year causes more sudden and damaging weather events and disasters. Unfortunately, hundreds of people lost their lives in disasters caused by severe weather conditions in 2021. Due to the damages caused by the disasters, high payments were made by the insurance sector.
British charity Christian Aid, in its report based on 2021 data, announced that the total cost of the world's 10 most expensive natural disasters this year is 170 billion dollars. The organization also underlines that some of the most devastating extreme weather events in 2021, from the statistical information in the report, hit poorer countries, which contribute little to climate change. According to the report, the total damage cost of the 10 disasters that cause the most financial damage is $20 billion more than the total damage from natural disasters in 2020. There is a 24% increase in the total damage cost compared to the previous year. The cost of these disasters to the insurance industry alone is the fourth highest since 1970. It is estimated that the 10 disasters in question caused at least more than a thousand deaths and displaced a million 300 thousand people. The most costly disaster of this year was Hurricane Ida, which struck the eastern United States in August and caused approximately $65 billion in damage. The flood disaster that occurred in Germany and Belgium in July was second in the list with a loss of 43 billion dollars.
The global reinsurance company Swiss Re Institute, which presents its own data and predictions as if confirming Christian Aid, announced that 2021 will be recorded as the year with the fourth highest insured loss due to natural disasters since 1970. Announcing its prediction on insured losses caused by worldwide natural disasters in December 2021, the organization announced that the cost of insured losses would reach $105 billion by the end of the year. This figure, which was announced, means an increase of 13 percent compared to 2020. Compared to the previous 10-year average, it means a cost of over 30 billion dollars.
Disasters caused by climate change were costly for insurance companies in 2021 as well. Global insurance giants announced that insured losses caused by worldwide disasters will exceed hundreds of billions of dollars. Reinsurance costs are also expected to rise in 2022.
The climate crisis is moving towards a point of no return for the world and humanity. The warming of the world with each passing year causes more sudden and damaging weather events and disasters. Unfortunately, hundreds of people lost their lives in disasters caused by severe weather conditions in 2021. Due to the damages caused by the disasters, high payments were made by the insurance sector.
The global reinsurance company Swiss Re Institute, which presents its own data and predictions as if confirming Christian Aid, announced that 2021 will be recorded as the year with the fourth highest insured loss due to natural disasters since 1970. Announcing its prediction on insured losses caused by worldwide natural disasters in December 2021, the organization announced that the cost of insured losses would reach $105 billion by the end of the year. This figure, which was announced, means an increase of 13 percent compared to 2020. Compared to the previous 10-year average, it means a cost of over 30 billion dollars.
If we look at the events with the highest losses according to Swiss Re, it is seen that Hurricane Ida, which took place in the third quarter, took the first place. Hurricane Ida caused between $30 and $32 billion in insured losses. After Ida, the Uri winter storm was the second most costly natural disaster of the year for the industry, costing $15 billion. The bill for the destruction caused by the storms in the USA in December 2021 is not yet clear. It will come as no surprise that these losses will increase the overall economic and insured cost of loss in 2021.
Outside the US, the highest insured loss in Europe in 2021 came after the floods in July devastated Germany, Belgium and nearby countries. The flood disaster caused insured losses of up to $13 billion. However, the economic losses from this flood event are estimated to total over $40 billion. This flood in Europe was recorded as the most costly natural disaster for the region since 1970. It was also the second-highest insurance loss in the world after the 2011 flood in Thailand. Flood events in Turkey, China and Canada were also among the biggest natural disasters of 2021.
Severe storms were also effective in Europe in June. Thunderstorms, hail and tornadoes caused widespread property damage in many countries. According to Swiss Re, insured losses from this event are estimated at $4.5 billion.
In the report, it was emphasized that the economic losses caused by natural disasters reached 259 billion dollars in 2021. This represents a 20% increase over last year's total. Economic losses from natural disasters in 2020 were $202 billion.
Things can change on the reinsurance side as well.
Given the increases in the effects of climate change, it is clear that natural disaster losses are likely to continue to grow. Insurance industry experts also emphasize that premiums should increase due to the concern that severe weather conditions due to climate change will be caused.
Industry experts in the US rank hurricanes as the primary hazard and among the disasters with the highest risk of damage. Thanks to this aspect, hurricanes can be closely monitored and modeled. Modeling is much more difficult due to the lack of data in disasters such as forest fire and avalanche, which are considered as secondary hazards. Therefore, the sector has difficulties in evaluating risks in the right parameters.
American credit rating agency AM Best predicts that the reinsurance pricing momentum will continue in the next year due to the high damage and cost amounts due to natural disasters. Stating that there is a stable outlook for the industry, AM Best expects pricing to continue to improve for reinsurers through 2022.
AM Best; He says reinsurance pricing needs to continue to harden to combat higher climate-related claims losses and underwriting issues stemming from social inflation and an uncertain economic outlook.
Outlook for Türkiye
Another negative aspect of the experience is that the risks of insurance companies that cover the damages are also increasing. This situation naturally reflects on the relations of insurance companies with reinsurance companies with which they are risk partners.
Experts, who expect reinsurance capacity to shrink and prices to increase in 2022, say, "Let's be ready for double-digit price increases in 2022 in reinsurance prices." The reasons are listed as follows:
- Continuation of the pandemic
- Uncertainties in the Turkish economy
- Increase in the number of natural disasters in Turkey
- Reduction in the capacity provided by global reinsurers to the Turkish insurance market
- Increase in reinsurance prices in global markets
- It will also negatively affect the relations of the Turkish insurance industry with global reinsurers.
For this reason, while the capacities obtained from global reinsurers contract in 2022, the situation is reversed in the reinsurance prices that have been falling over the years. Since the price increases in the reinsurance market in developed countries will be reflected in the Turkish insurance market, the fateful association of the leading companies of the reinsurance world with the insurance companies may decrease. The expectations of the experts in one sentence are as follows: “The increase in natural disasters, the continuation of low interest rates and increasing inflation concerns may continue the price increase trend in 2022.”
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