Europe in the spotlight as global economic losses from catastrophes reach USD 280 billion in 2023

In what was the hottest year on record, Swiss Re's latest sigma report reveals that catastrophes resulted in global economic losses of USD 280 billion in 2023. Of these, USD 108 billion (40%) were insured, above the previous 10-year average of USD 89 billion.

Relative to GDP, we estimate that the insurance loss burden from catastrophes has more than doubled over the last 30 years. And as climate change and trends such as urbanisation continue, the contribution of more frequent and severe weather events to losses looks set to rise in the future.

In absolute terms, we estimate that insurance losses could double in the space of just a decade.

According to sigma data, the main driver of the accumulation of insured losses in 2023 was event frequency. Critically, there were 142 insured-loss inducing catastrophes last year (as per the sigma threshold), a new record. Further, due to event frequency, annual global insured losses (inflation-adjusted) of more than USD 100 billion have become standard.

The fastest growing category of catastrophes is "medium-severity events", defined as events causing losses of USD 1-5 billion. Most of this category comes under severe convective storms (SCS) - the umbrella term for a range of hazards including tornadoes and significant hail incidents.

After tropical cyclones, SCS have collectively become the second largest loss causing peril. In 2023, SCS-insured losses were USD 64 billion - another new high.

Analysing the rising losses in Europe

Here, an increasingly bright spotlight is being shone on Europe. While the vast majority of SCS losses (85%) last year originated in the US, they are growing fastest in Europe, where SCS losses have topped USD 5 billion in each of the last three years.

Italy in particular experienced the destructive power of hail when a series of SCS hit the densely populated northern areas of the country, causing insured losses of USD 5.5 billion - the highest ever for a SCS event in Europe on sigma records. Further, Italy also set new records from a hazard severity perspective, with documented hailstone diameters of up to 16 cm, in one case even 19 cm - the largest ever reported in Europe.

Indeed, these impacts have flagged that it is perhaps time to adjust associated risk assessment, with the severity of the losses having come as a shock to the industry - particularly given that insurance penetration in the residential sector is still relatively low.

Looking beyond SCS, Europe experienced the largest total economic losses from all catastrophes of any continent. Of the total USD 280 billion recorded globally, more than USD 100 billion were in Europe.

The earthquake in Turkey and Syria was the biggest humanitarian disaster of the year, claiming close to 58 000 lives. With insured losses of USD 6.2 billion, it was also the costliest industry event.

In this case, the quake struck areas of low insurance penetration where roughly 90% of the economic losses were not covered - a dramatic reminder of the protection gaps that many people across the world face.

Floods continue to be critical, especially in urban areas

Slovenia equally garnered significant attention last year, with extreme floods having occurred across the country following relentless rainfall in early August.

According to a report from the Slovenian Environment Agency (ARSO), typical historic amounts of precipitation for the whole of August fell in just a few hours in some areas, with record or near-record daily rainfall totals having been measured in several locations on 4 August.

As well as resulting in three casualties, it is estimated that insured losses associated with the flooding were close to EUR 350 million. Indeed, the scale of the disaster is unprecedented in Slovenia's history, with roughly two thirds of the country having been affected.

The Slovenia example serves as a distinct wake up call, demonstrating the potential scale of the impacts that floods can cause - particularly in urban areas. Last year, Greece was also exposed to the costliest event in its history from floods resulting from Storm Daniel, the worst rainfall event in the country's recorded history.

In total, the insured losses from large floods in urban areas in Europe reached almost USD 5 billion, and across the world pushed inundation-related insured losses to USD 14 billion in 2023.

Addressing hail risks with mitigation and adaptation measures

The latest Swiss Re sigma report confirms that hailstorms are by far the largest contributor to insured losses from SCS, responsible for around 50-80% annually.

Here, there are several exacerbating factors. Depending on their size, speed of travel and impact angle, hailstones can inflict significant damage to roofs, building façades, external thermal insulation layers, solar panels and other property features such as skylights and slat blinds. If followed by water ingress, internal structures and building contents can also be impacted.

Further, hail can cause dents and structural deformations to vehicles, potentially triggering expensive repair costs and a rise in motor claims, while also reducing resale value.

These risks signal the need for mitigation, adaptation measures and risk engineering.

At present, one of the difficulties in SCS risk modelling is that susceptibility to damage not only depends on building age or occupancy type, but it is also shaped by parameters that are often not provided in exposure data, such as installation quality, construction type, hail impact resistance, architectural style, and materials used.

For a more accurate assessment of vulnerability, this information gap needs to be narrowed, and the lack of building codes for hail in many regions needs to be addressed.

Managing growing risks

Catastrophe insurance claims have outpaced GDP growth over many years, increasing the loss burden to society and raising challenges to insurance affordability. And losses are only set to further increase in a world of fast evolving risk landscapes underpinned by economic growth, urbanisation, the associated accumulation of assets that need insuring, and intensifying hazards for certain perils and regions due to climate change effects.

For the insurance industry to better deal with the loss developments of today and prepare for the weather of tomorrow, exposure modelling has to be done on the basis of up-to-date and more detailed exposure data. On the claims side, the initial estimation of a catastrophe loss event should not only be based on historical event data, but also reflect current insured values and inflation parameters at the time of the loss. The "loss creep" we have seen in several recent European catastrophe events shows that they have been massively underestimated, driven by an increasing shortage of skilled workers, loss adjusters and experts in addition to rising labour prices following large events, among other factors.

The increase of catastrophe events in Europe and their consequences not only concern the insurance industry, but affect societies as such. Consequences and measures to be taken require a broader societal effort including individual property owners, other private sector players, governments, regulators, supervisors, and the insurance industry all having a role to play.

It is critically important that the necessary steps are taken. The insurance industry will continue to play its role in covering the risks that remain outstanding after mitigation and adaptation actions take effect.