Despite two major earthquakes, typhoons, floods, and storms in New Zealand, the United States, and Europe, 2023 turned out to be a relatively ‘good’ year for the world’s insurers, with losses and costs not too far from 2022. However, the industry could not escape the growing impact of climate change and global warming, with a significant portion of the billions in losses stemming from unusually strong thunderstorms in the US and Europe.
The financial impact on insurers was cushioned by record interest rates, as central banks, led by the US Fed, tightened monetary policy to combat rising inflation. Insurers like Australia’s QBE and Warren Buffett’s insurance and reinsurance businesses witnessed strong rises in interest income last year, helping alleviate financial pressures experienced in 2022.
This ‘good’ year in 2023 explains why the shares of QBE, IAG, and Suncorp have performed reasonably well, despite the lingering effects of La Niña events and the latest round of rain and flooding.
Destructive thunderstorms in North America and Europe, coupled with a series of devastating earthquakes last year, resulted in approximately $US250 billion in damages (around $A370 billion), according to the latest annual report on the financial impact of major natural disasters.
Released on Tuesday, Munich Re, the world’s largest reinsurer, reported that natural disasters in the past year led to global economic losses roughly in line with those of the previous year. However, insured losses for the year decreased by 20%, totaling $US95 billion ($A142 billion), down from $US125 billion ($A186 billion) in 2022.
Munich Re highlighted a significant number of severe regional storms as a contributing factor to these figures. It noted that thunderstorms in North America last year destroyed approximately $US66 billion in assets, of which $US50 billion was insured. In Europe, thunderstorm losses amounted to $US10 billion, with $US8 billion covered by insurance.
Munich Re warned that such high thunderstorm losses were unprecedented for the US and Europe and that losses from thunderstorms, often referred to as “secondary perils” or smaller to mid-sized events, are likely to increase in the coming years. In its report, Munich Re stated, “A large body of scientific research indicates that climate change favors severe weather with heavy hailstorms. Similarly, loss statistics from thunderstorms in North America and other regions are trending upwards.”
In the Asia-Pacific and Africa region, overall losses in 2023 of $US64 billion were slightly lower than the previous year ($US66 billion). Approximately $US8 billion of this amount was insured, down from $US11 billion the previous year. Japan, a country highly exposed to natural hazards, experienced minimal damage in 2023, with two major catastrophes in New Zealand accounting for the highest insured losses in the Asia-Pacific, totaling around $US4 billion.
Munich Re highlighted massive floods in and around Auckland, New Zealand’s largest city, causing insured losses of nearly $US2 billion and overall losses of $US$2.9 billion in early February. Mid-February brought Cyclone Gabrielle, resulting in significant damage on New Zealand’s North Island and Norfolk Island.
In Australia, severe flooding occurred in mid-December due to tropical storm Jasper in the state of Queensland, with the extent of damage still being assessed.
Munich Re reiterated that the climate crisis is leading to more frequent and intense extreme weather events, noting that 2023 was the hottest year ever, with numerous regional records broken.
While the economic and insured losses from 2023 may not seem extraordinary, Munich Re emphasized that it marked another year of “extremely high” damages, even without any so-called mega-disasters in industrialized countries.
In 2022, for instance, Hurricane Ian in the southern USA resulted in overall economic losses of $US100 billion and insured losses of $US60 billion due to the developed nature of human settlement and activity in the affected areas.
Ernst Rauch, chief climate and geo scientist at Munich Re, stressed that annual economic losses had previously been significantly influenced by mega-disasters, and it was by chance that one did not occur last year. He warned that without greater focus on resilience as a society, losses, especially from weather-related events, would likely increase in the future, becoming both an economic and social challenge.
Munich Re reported that the number of deaths caused by natural disasters rose to 74,000 in 2023, far exceeding the annual average of 10,000 over the past five years. Approximately 63,000 people died (accounting for 85% of the year’s total deaths) as a result of earthquakes in 2023, the highest number since 2010.
The year’s most destructive natural disaster, according to Munich Re, was the earthquakes in Turkey and Syria in early February, resulting in overall economic losses of around $US50 billion. These powerful quakes and subsequent aftershocks claimed over 55,000 lives in Turkey and Syria, with a further 100,000 people injured.