Risk insights to tackle the toughest decisions

As climate change amplifies weather-driven natural catastrophes, many people are asking how we can best ensure access to adequate, affordable insurance protection. A big part of the answer lies in tapping sophisticated, data-driven risk insights to help society both mitigate and adapt to evolving climate-related perils before our options narrow. Swiss Re has tools that can help on both fronts.

I recently met with journalists to discuss natural catastrophes that in 2023 caused global insured losses of USD 108 billion. It was the fourth straight year this figure has exceeded the USD 100 billion threshold, as Swiss Re Institute documented in its sigma report, "Natural catastrophes in 2023: Gearing up for today's and tomorrow's weather risks."

These costs are also accelerating. Average annual global insured losses from natural catastrophes took the last 30 years to double but are projected to quickly double again over the next decade. The NatCat protection gap remains vast, as well, with only about a third of the USD 280 billion in total economic losses last year from natural catastrophes covered by insurance.

While rising losses in recent decades have been driven by economic growth and asset accumulation in vulnerable regions, we anticipate that intensifying climate-driven weather hazards including frequent storms and flooding will become a bigger factor in insured losses going forward. 

Trends like these have journalists and many other people wondering if there are places that may eventually become uninsurable. It's a fair question. Last year we saw some insurers exit select regions, citing factors including exposure to catastrophes like wildfires, regulatory challenges and repair-cost inflation that made it tough to do business.

Growing natural catastrophe risks, the accompanying losses, and questions over the future of protection all underscore a key mandate for our industry: making the most of data-driven insights to drive risk adaptation and mitigation efforts. This can help ensure that the world is ready for extremer weather, so insurance is available and affordable for as many people as possible.

The re/insurance industry can support climate risk mitigation as a long-term investor as well as by applying our unique risk insights to help underwrite climate-positive projects that catalyse new technology essential to achieving net-zero emission targets.

We can also play a valuable role in driving adaptation to climate risks. With some of the global temperature increases already locked in – 2023 was the warmest year on record, and 2024 is following a similar trajectory – our risk solutions are well suited to help prepare societies for the extremer weather that we can no longer avoid.

With more than 160 years of experience in helping insurers, corporate clients and governments navigate risks, Swiss Re has built more than 200 terabytes of curated risk portfolio data into our more than 190 individual models covering more than 90% of all insured exposures.

With our risk assessment platform for property risks, clients can integrate historical records, satellite imagery, and meteorological data into their decision-making. Understanding weather patterns as well as terrain features from high-resolution maps helps them develop a ground-level picture of hidden risks within their portfolios or their complex global property footprints.

A prime example of the dynamic risk landscape we incorporate into our models covers thunderstorms, which can produce not only tornadoes but also hailstones capable of laying waste to farmers' fields, automobiles, even big new solar photovoltaic installations so important to the energy transition needed to cut carbon emissions.

Long a relatively modest secondary peril, thunderstorms in 2023 produced more than half of global insured losses from natural catastrophes. While the US is most exposed, this threat is global. In Italy, for example, thunderstorm losses last year topped USD 5.5 billion, 20-fold the previous record.

The ability to stay abreast of changing exposures like these is essential to managing risk. It's no coincidence that greater than 50 percent of our exposure to secondary perils like thunderstorms, floods, and wildfires is covered by models that have been developed or updated in the last five years.

Admittedly, recent news about weather-related perils has been very sobering. From Australia to eastern Europe to Asia, cities are under water. People are even being forced to move elsewhere as their climate-driven risks grow, with some towns relocating or planning to do so in the near future.

Residents of these places face very tough decisions. And yet, if your house is vulnerable to rising seas or exposed to a wild river that almost annually overflows its banks, sometimes the toughest decisions are the only ones left to make.

This is why a proactive, insights-driven approach, one that informs efforts to mitigate the forces driving climate change while supporting adaptation measures needed to prepare for its enduring effects, is crucial to protect our communities and preserve our options.

Insurers will always face difficult decisions about when to take risks, or even when to beat a retreat, should an endeavor fall outside their risk appetite. Armed with the right insights, they can make assessments tailored to their unique needs and exposures, identify risk-prone areas, estimate potential losses, and then chart the best course forward.

_{This article was originally published in Insurance Post.}