The world is experiencing one in 1,000-year weather-related events, and in the last 12 months we have observed large-scale disasters impacting every continent, including unprecedented flooding across Australia, China, Pakistan and South Africa; one of the strongest hurricanes ever recorded in the US; and severe droughts in Brazil, Italy and the US.

Hurricane Ian alone (which swept through Florida and South Carolina in September) has estimated losses of between US$53bn and US$75bn and is one of the most significant natural disasters for the insurance sector in decades.

According to the Aon Global Catastrophe Recap of the first half of 2022, global economic losses from natural disasters amounted to US$92bn, of which insured losses accounted for US$39bn.

These continued catastrophic events are severely impacting access to insurance in some of the affected areas, increasing flood premiums and making reinsurance renewals more challenging.

Inflation is already impacting supply costs, labour and materials. Catastrophic weather events may put further pressure on premiums, and feed through to the primary insurance market, potentially impacting both property and business insurance premiums. In addition, climate activists are targeting companies that have poor sustainability track records, resulting in litigation, for which policyholders may look to insurers for reimbursement.

Given that climate experts forecast these significant weather events to continue, insurers and businesses need to work together now to lessen their impact. There are several new products that can help to mitigate losses and allow claims to be paid faster. Among them, a recent graduate from the Lloyd’s Innovation Lab, is FloodFlash, a type of parametric insurance cover for at-risk locations, which uses a smart flood sensor installed at the insured property to collate data and automatically initiate a claim.

Another business supported by the Lloyd’s Innovation Lab, is ICEYE. Its Synthetic Aperture Radar data provider is able to supply fully interpreted and frequent information about flood, fire and hurricane-hit areas via a constellation of satellites, enabling the generation of automated claims.

In the meantime, a number of insurers are focused on resolving disputes with customers, particularly around the extent of coverage available for each catastrophic event. This varies between location and will involve complex expert analysis. The issue of exclusion clauses has been closely examined in Australia following prolonged flooding in Eastern Australia in February and March 2022, which to date has cost the industry US$3.5bn.

Fundamentally, insurers will continue to count the cost of significant weather events. They will need to work even more closely with customers, industry, innovators and other significant stakeholders to advise on flood mitigation, building and infrastructure reinforcement measures, and assist business continuity during weather events.

Insurers cannot do this in isolation, however, and will need the support of governments in terms of climate resilience funds, reinsurance pools for weather challenged areas, increased environmental scrutiny and regulation of industry stakeholders, as well as a sustained and coordinated approach amongst major governments to achieve net-zero carbon emissions by 2050.

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