Severe storms cost insurers a record US$60 billion in 2023

The increased frequency of severe thunderstorms as a result of global warming is the main contributor to insured losses this year at US$60 billion, according to the Swiss Re Institute.

This is the first time that severe thunderstorms have caused this level of loss in the insurance industry – yet this number only represents a fraction of the overall cost of natural disaster-related damages, which is estimated at US$269 billion in 2023.

In light of these statistics, businesses are being urged to invest in climate adaptation and resilience through infrastructure improvements to better withstand floods or water shortages – measures that are proven to pay off.

Thunderstorms now main contributor to insured losses

Overall, the insurance industry covered insured losses of US$100 billion this year or about 40% of total natural disaster costs, highlighting growing “protection gaps”, says Swiss Re.

Losses from severe thunderstorms have been increasing steadily in the last 30 years, at a rate of 7%. But in 2023, they jumped by almost 90% compared to the previous five-year average of US$32 billion as storms ravaged several regions, including the US and Europe where property prices and insurance levels are high.

"The cumulative effect of frequent, low-loss events, along with increasing property values and repair costs, has a big impact on an insurer's profitability over a longer period. The high frequency of severe thunderstorms in 2023 has been an earnings' test for the primary insurance industry," said Jérôme Jean Haegeli, Swiss Re's Group Chief Economist.

Insured losses from overall natural catastrophes declined this year, from US$133 billion to US$100 billion, firmly placing thunderstorms as the lead contributor, though hurricanes, cyclones and wildfires also made the list. 

Role of insurance sector in climate adaptation

With extreme weather events increasing in frequency due to climate change, insurers are being forced to make adjustments, increasing premiums to “adequately reflect the risk for the coverage provided especially also in light of increasing loss trends,” as explained by Balz Grollimund, Swiss Re’s Head Catastrophe Perils.

Insurance firms have made investments in better forecasting technologies, but the OECD warns that there remain “a number of uncertainties related to future emissions, hazard frequency and severity and exposure and vulnerability that increase the level of uncertainty in loss distributions generated through climate-conditioned catastrophe models – especially for the more distant future”.

Some areas are also becoming particularly difficult to insure, with industry experts raising the alarm on the fact that some regions could become ‘uninsurable’.