Secondary perils more costly than primary nat cat events, Swiss Re warns

The Swiss Re Institute has today said that it expects losses from secondary perils to rise due to growing assets in areas exposed to more extreme weather conditions. It says the last two years’ cat losses demonstrate the potential for growing devastation caused by these secondary perils.

Global insured losses from natural catastrophes in 2018 were US$76bn, over 60% of which resulted from secondary perils. Combined insured natural catastrophe losses for 2017-2018 were US$219bn, the highest ever over a two-year period.

Secondary perils are considered as either independent, high-frequency (that is, more frequent than primary peril events such as earthquakes and hurricanes), low-to-medium severity loss events (relative to losses resulting from primary perils); or events that occur as secondary effects of primary perils (such as a tsunami following an earthquake).
The insured losses from natural catastrophes in 2017 and 2018 together were US$219bn, the highest ever for a two-year period. In 2017, when aggregate natural disaster insurance claims were the highest ever in a single year, more than half were due to secondary perils. Losses from secondary perils are rising due to urbanisation, rising concentration of assets in areas exposed to extreme weather conditions, and climate change.

The risks posed by secondary perils tend to be underestimated because their impact is masked by the losses inflicted by primary events, as was the case in 2017 with Hurricanes Harvey, Irma and Maria. However, their growing loss potential is becoming ever more apparent.

“Large losses from secondary perils are occurring more regularly”, says Swiss Re’s group chief underwriting officer, Edouard Schmid. “This is a trend the insurance industry must act on so that we can continue to underwrite catastrophe business sustainably.”

Total global economic losses from natural catastrophes and man-made disasters in 2018 were US$165bn. Some 13,500 people lost their lives or went missing in catastrophe events last year. The insurance industry covered US$85bn of global economic losses, the fourth highest one-year aggregate industry pay-out ever, and above the previous 10-year annual average of US$71bn. Of last year’s insured losses, US$76bn were due to natural catastrophes, also the fourth highest on record.

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