2009 catastrophes cost insurers $26bn

Chris Wheal

Mar 17th 2010

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Swiss Re's sigma study reports that natural catastrophes and man-made disasters in 2009 cost insurers $26bn and society $62bn overall, below average due to a calm US hurricane season.

Natural catastrophes cost insurers $22bn in 2009, while man-made disasters cost an additional $4bn. While the figures are down, they emphasise the importance of insurance. Residents of Chile will be much better off than those in Haiti because Chile had better insurance cover.

Insured losses were highest in North America, where they cost insurers over $12.7bn. The death toll was the highest in Asia, where nearly 9 400 of the world's 15 000 catastrophe victims lived. Insured losses in the region were approximately $2.4bn.

Insured losses in 2009 were low

There were 133 natural catastrophes and 155 man-made disasters occurred in 2009. Six events each triggered insured losses in excess of $1bn. The costliest event was the European winter storm Klaus, which struck France and Spain in January, and led to insured losses of €2.35bn (nearly $3.4bn).

Thomas Hess, chief economist of Swiss Re, said: "The probability that we see natcat losses as low as those in 2009 is less than 35%. We have already seen significant events in 2010 with winter storm Xynthia in Europe or the earthquakes in Chile and Haiti.

"The industry is therefore well advised to prepare for much higher losses. Given their high volatility, losses could easily be three to five times what they were in 2009.

"In 2005, insured losses set a record when they soared to $120bn. I would not be surprised if this record is broken in the not too distant future."

Secondary perils

In 2009, more than half of the natural catastrophe loss burden was caused by what the insurance industry calls secondary perils. These include flooding, landslides, hail storms, tornadoes, winter storms outside Europe, snow and ice storms, droughts and bush fires.

Dr Jens Mehlhorn, co-author of the sigma study said: "Premiums from primary perils are often used to cross-subsidise losses from secondary perils. The risk is that if premiums deteriorate, they can become insufficient to pay for the sum of losses caused by primary and secondary perils.

"More advanced probabilistic risk assessment models would help to better gauge and price the risk of secondary perils."

That's a bit like a school report that say "could do better". Insurers need to step up a gear when it comes to risk modelling for these secondary perils.