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The “new normal” of recurrent and severe weather events represents an unpleasant reality for insurance companies and their policyholders. Climate change-driven catastrophes will continue to plague the U.S. in 2024 and beyond and will have an outsized effect on insurance rates and availability. While there are signs of some relief for insureds, those acknowledging a new reality will have an edge on controlling risk and obtaining rate relief.
The numbers are concerning: Worldwide losses from natural catastrophes amounted to $280 billion during 2023. That figure doesn’t help U.S. business owners and managers trying to get their insurance costs under control.
Globally, there were 143 insured natural disasters in 2023, the most ever. That included 30 disasters with losses between $1 billion and $5 billion, compared to an average of 17 such catastrophes of similar proportions in the 10 previous years.
The U.S. had a record number 28 disasters totaling $1 billion or more of damage. While the wildfires in Hawaii and hurricanes generated the most headlines, severe convective storms, flooding and hailstorms resulted in enormous damage.
Climate change has been identified as the culprit for more frequent and destructive storms and wildfires. Severe convective storms accounted for $64 billion in
losses in 2023 — and 85% (approximately $54 billion) of those losses were in the U.S. In fact, insured losses from severe convective storms have risen an average of 8% each year since 2008.
These disasters have contributed to the challenges of the commercial insurance market, in which rates rose consistently for the past 25 quarters. In the first quarter of 2024, property rates increased 10.5%, compared with 10.3% in the fourth quarter of 2023. Similar increases have been seen for business owners, commercial auto, umbrella coverage and general liability policies.
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While finding adequate insurance for commercial properties will remain difficult, we expect market instability will level off throughout the rest of 2024.
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1. Swiss Re Institute, “Natural disasters in 2023,“ March 26, 2024.
8. Insurance Information Institute, “Facts + Statistics: U.S. catastrophes,” accessed May 2, 2024.
How the changing nature of catastrophic weather events affects businesses
In the past few decades, in addition to hurricanes, the U.S. has faced baseball-sized hail, unprecedented flooding and devastating wildfires. While these events are not uncommon, climate change has increased their frequency and severity.
Despite a mild hurricane season in 2023, perils once considered moderate risks had an outsized impact on the U.S., resulting in billions in insured losses. A combination of these events — plus hurricanes and wildfires — proved devastating for some businesses and their insurers.
To improve insurability and reduce risk in the short-term, business owners and managers should consider the following:
Build resiliency against disasters.
Short of moving a business out of a catastrophe-prone area, it’s impossible to remove all exposure to disasters. However, upgrading roofs, plumbing, electrical systems and other at-risk elements will reduce the risk of a claim. In areas prone to wildfires, buildings should be in “defensible” positions with non-combustible landscaping; in geographies with severe convective storms and hurricanes, property must be secure and stored when possible.
Implement emergency response plans for catastrophes.
With catastrophes more common than ever, underwriters will look favorably on insureds that have an emergency response plan for a catastrophic event. Plans for evacuation, protecting property and business continuation in the event of a ruinous weather event will help secure appropriate coverage at an affordable rate.
Seek insurance coverage from nontraditional sources.
Consider coverage from excess and surplus (E&S) insurers, captive insurance options and shouldering additional risk. With climate change leading to less insurance availability, remember that a single insurer will be unlikely to fulfill all your needs.
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Fortunately, there may be some relief for catastrophe-prone regions in terms of insurance pricing and availability. U.S. insured property losses reached $79.6 billion in 2023, which is an enormous amount but 43% lower than the $114 billion paid out in 2022 and 33% less than the $106 billion in losses in 2021.
2. Swiss Re, “New record of 142 natural catastrophes accumulates to USD 108 billion insured losses in 2023,” March 26, 2024.
In perilous times, insurance and risk management offer the opportunity for better results
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Will catastrophic weather be the new normal?
Insurers were on the hook for $108 billion in damages from catastrophes in 2023, down from $125 billion in 2022 but above the 10-year average of $89 billion.
However, there is hope on the horizon. Reinsurers, often seen as a predictive measure for primary insurance carriers, reported strong profits in 2023 due to higher rate hikes and tight terms. Those margins are expected to peak in 2024, leading to an influx of capital and a softer market in 2025.
Simply put, the enormous rate increases in 2023 reflected a terrible 2022. A milder-than-expected hurricane season last year resulted in a positive year for insurers despite massive payouts for other disasters because rates were high. As a result, capacity is increasing, which is expected to result in stability and, in some cases, rate decreases. But a difficult Atlantic hurricane season this year could disrupt rate stabilization.
Strong risk management continues to be an essential component for organizations to keep rates in check and keep themselves adequately insured.
An April 2024 downpour dropped as much as 10 inches of rain in the desert climate of the United Arab Emirates and Oman, causing widespread flooding. Experts identified climate change as the reason for the intensity of the storm.
Catastrophic Floods in the Desert
The light after the storm
Although catastrophes will strike the U.S. at a higher rate with greater intensity in the future, as noted above 2023 was less catastrophic than previous years due to a less active hurricane season than anticipated.
And, as also noted above, expanded capacity in the insurance market will result in insureds in most of the U.S. likely seeing rate stability and greater availability of coverage options — which could change with a worse-than-average hurricane season.
Insurance for properties with exposure to catastrophic perils may not experience the same level of relief. Rates will depend on factors including a property’s occupancy, exposure to natural catastrophe, age, construction and protection against loss.
Underwriters will continue to pay close attention to insureds’ loss experience, valuation methodology, risk control and geographic footprint in determining premiums. Organizations with strong risk management programs that make the effort to mitigate their exposures will be the most likely to reap the benefits.
Work with your broker early on renewals.
Start the planning for insurance renewal as much as 150 days before the deadline. While that’s a lot of time compared with the 60 to 90 days before renewals that companies have allotted in the past, the realities of today’s evolving insurance landscape mandate extra time to obtain adequate coverage.
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3. National Oceanic and Atmospheric Administration, “U.S. struck with historic number of billion-dollar disasters in 2023,” January 9, 2024.
4. Swiss Re Institute, “Natural disasters in 2023,“ March 26, 2024.
5. Reuters, “What caused Dubai floods? Experts cite climate change, not cloud seeding,” April 18, 2024.
6. Business Insurance, “Insurance rate increases accelerate in Q1,”April 15, 2024.
7. Fitch Ratings, “Reinsurers’ Underwriting Margins to Peak in 2024,” January 23, 2024.
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9. Amounts adjusted to reflect 2023 dollars.
10. Federal Reserve Bank of St. Louis, “Producer Price Index by Industry: New Industrial Building Construction” and “Producer Price Index by Industry: New Office Building Construction,” accessed May 2, 2024.
11. Currie & Brown, US construction market overview Q2 2024, accessed May 2, 2024.
Insurers were on the hook for
in damages from catastrophes in 2023
$108 billion
$79.6
billion
U.S. insured property losses reached
$108 billion
Insurers were on the hook for
in 2023
In addition to these enormous losses, the costs of rebuilding have risen. In the last five years, material, equipment and labor costs for industrial and office building construction rose 46%, not including the expense of financing or insurance. Costs are expected to rise as much as 6% in 2024.
which is an enormous amount but 43% lower from the $114 billion paid out in 2022 and 33% less than
the $106 billion in losses in 2021.
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