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It’s not been a good season for insurance companies in the United States. Last year, they lost $15.2 billion net underwriting as per a US-based rating agency named AM Best. These losses are the worst ever posted since 2000 and more than twice the losses in 2022.
These companies owe their losses to a troika of adversaries — rising incidence of natural disasters, a soaring inflation and an increasing population in the disaster-prone geographies.
As a result, the insurance companies are either increasing the cost of insurance packages or are exiting the sector in the vulnerable areas.
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Robert Gordon, senior vice-president of policy, research and international at the American Property Casualty Insurance Association, a trade body, was quoted by the press as saying that the insurance industry is facing rapidly escalating coverage demands while the insured losses continue to surge.
“Not only are more homes being built in areas that are at high risk for natural disasters, but these homes are increasingly more expensive to repair and rebuild as inflation has driven up the cost of construction labour and materials,” Gordon added.
Usually, in America, it is the hurricanes that wreak maximum havoc on real estate and cause huge losses. However, last year was comparatively peaceful in terms of the incidence and intensity of hurricanes.
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Despite this, increasing incidence of severe rainfall, flooding and other climate change-related adverse weather events which the insurance companies refer to as ‘secondary’ contribute to the heavy losses.
A record 37 isolated events globally left more than $1 billion in insured losses.
It has been widely reported that global warming is making storms, floods and wildfires more extreme and destructive.
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Sridhar Manyem, senior director of industry research and analytics at AM Best, was quoted as saying — “...increasing frequency and severity of weather-driven losses is a major uncertainty that is influencing both insurance and reinsurance markets”.