According to an AM Best commentary, secondary peril events are becoming more impactful and generating an increasing amount of insured losses, affecting the bottom lines of personal and commercial lines property underwriters.
A new Best’s Commentary, titled, “Secondary Perils Increasingly Responsible for Largest U.S. Catastrophes,” notes that although the trends of more frequent and harmful catastrophes are a global issue, the United States continues to suffer many of the most intense and most impactful natural disasters in terms of total damages and insured losses. Furthermore, demographic shifts and population growth in coastal or other disaster-prone areas have increased the magnitude of economic and insured losses. “As we’ve seen with population growth in wildfire-prone areas in California and other western states – including the recent fires in Colorado – higher economic and insured losses are occurring despite natural disasters of lesser intensity,” said David Blades, AM Best’s associate director of industry research and analytics.
According to the commentary, early estimates of natural disaster losses in 2021 exceed $105 billion, making it the fourth-highest annual total since 1970. A clear pattern of more frequent, significant natural disaster events has emerged over the last 40 years, with the trend appearing to have accelerated in the last decade. Insurance companies that are vulnerable to secondary peril risks such as wildfires, tornadoes, and severe thunderstorms will face increased enterprise risk management concerns.
“The fact remains that secondary perils have not been modeled to the same extent as primary perils, though this modeling is evolving, and insurers are taking actions to address exposures to these risks through underwriting and pricing actions,” said AM Best managing director John Andre.
Insurers may face higher insured losses in the near term as a result of inflation increasing the value of exposed property, as well as continued demographic shifts to higher-risk geographies and aging building stock. The impact of these trends is also reflected in primary company reinsurance pricing, particularly in loss-affected areas.
To read the entire commentary, go to http://www3.ambest.com/bestweek/purchase.asp?record code=316561.