The Insurance Implications of NatCat Events

This year has seen a surge in natural catastrophe (NatCat) losses, driven by events like Storm Boris in Europe and Hurricanes Helene and Milton in the US. This trend is set to continue due to climate change with warmer sea temperatures and changing weather patterns leading to more extreme weather events. 

These events underscore the increasing impact of climate change on the insurance industry. In this article, we’ll explore the rise in NatCat events, their implications for global insurance markets, and their potential impact on UK businesses. We’ll also outline some key considerations for UK business owners and explain how L Wood can help you navigate these choppy waters. 

The Impact of NatCat Events on the US Insurance Market

The US insurance market is currently grappling with the consequences of this year’s costly hurricane season, with Hurricane Milton alone estimated to have caused over $50 billion in damages. The widespread property damage and tragic loss of life have left insurers dealing with a mountain of claims, which is having a knock-on effect on their profits. 

Florida has been particularly hard hit, causing insurers to retreat from the market, leaving individuals with fewer insurance options and higher costs. The situation has also triggered a decline in insurance stocks and raised concerns about the long-term financial health of the industry in the face of escalating hurricane activity. 

The Impact of NatCat Events on the Global Insurance Market

Globally, insured losses from events in the first half of 2024 reached $60 billion, according to Swiss Re—a staggering 62% above the ten-year average. In response, insurers are tightening underwriting standards, raising premiums, and adopting more conservative approaches to policy limits and deductibles.

Additionally, insurers are prioritising risk mitigation and preventative measures, working with clients to implement solutions such as flood defences and infrastructure improvements. Dominic Lion from AJ Gallagher highlights the growing role of alternative risk transfer solutions, stating, “Higher nat cat rates and/or retentions could see a bigger role for alternative risk transfer solutions, like captive insurers.” Despite these challenges, the reinsurance market has remained relatively stable so far, providing crucial support in mitigating losses and maintaining market stability. 

The Impact of NatCat Events on UK Businesses

While the UK may not experience the same scale of NatCat events as the US or other parts of Europe, it would be remiss not to mention that, of course, they send ripples across the pond, affecting UK businesses in several ways. 

• Disruptions to global supply chains: Extreme weather events in other regions can delay or halt imports vital to UK businesses, causing operational challenges.

• Rising insurance premiums: The interconnected nature of the global insurance market means significant NatCat losses abroad can drive up premiums for UK businesses, even if they are not directly exposed to such events.

• The need for robust insurance: These ripple effects underscore the importance of having comprehensive insurance coverage in the UK. With global warming increasing the likelihood of NatCat events worldwide, even traditionally low-risk areas are not immune to unexpected impacts.

How Can L Wood Insurance Brokers Help?

UK businesses may face lower direct risks from rising NatCat events globally, but it’s vital to understand how climate change is reshaping the insurance landscape. L Wood Insurance Brokers offers expert advice on risk mitigation and insurance essentials to keep your business prepared, informed, and resilient—whether addressing the impacts of global events or safeguarding against local risks like flooding.

Contact us on 01274 515747 for tailored advice and strategies to protect your business in an ever-changing world.

Sources:

• https://www.commercialriskonline.com/minimal-short-term-impact-from-nat-cat-losses-but-rising-claims-may-signal-future-property-rises/
• https://www.globaldata.com/media/insurance/hurricane-helene-milton-damages-will-significantly-impact-profitability-us-insurers-says-globaldata/
• https://www.fitchratings.com/research/insurance/hurricane-milton-effect-on-global-re-insurance-ratings-likely-limited-10-10-2024