Engage with governments to better tackle cat risk: Guy Carp

The past year has been another expensive one for catastrophic events, which may cost the industry more than $100 billion. Yet while Hurricane Ian will probably be the most significant event, its magnitude should have been no surprise, Karl Jones (pictured), head of global strategic advisory, Asia-Pacific at Guy Carpenter, told Intelligent Insurer.

The impact of Hurricane Ian is yet to be fully realised, but Jones does not believe it will be an industry-changing event in the way that Hurricane Andrew was. This is largely because such an event is well within the predictions of risk models.

“I don’t think it’s going to be of the same industry-changing nature as Andrew. Florida is one of the most modelled territories on Earth, so it should not be a surprise that we’ve had a major hurricane.

“That said, Florida has some unique challenges which put pressure on re/insurance, so it will naturally have some impact,” he said.

The final loss from Hurricane Ian may not be known for some time. Current estimates suggest it will cost between $40 and $60 billion. “We hope it will be towards the bottom end of that, but even at $40 billion, that’s going to be one of the larger hurricanes we’ve seen.”

The industry’s challenges are much wider than one hurricane. Beside the impact of Hurricane Ian, Jones highlighted a range of other events the industry is coming to terms with. Catastrophic floods in Australia have set new records, while hailstorms in Europe and flooding in South Africa have all added to a growing bill. In Asia there has been a number of smaller yet costly events.

Discussing the impact of such events on the reinsurance industry in Asia-Pacific, Jones said the industry needs no reminding that the past year’s events follow several years of other significant cat events.

“It’s not that we haven’t had big years before; if you go back to 2011 or 2017, they were also significant years, but there’s always been a couple of quieter years afterwards,” he said. “The last five years have been consistently bad, however, and that’s probably added to the overall pressure globally on re/insurance.”

Cause and effect

Discussing the role of climate change in influencing these events, he acknowledged its impact, but pointed to other factors as well.

“Can we attribute an individual event to climate change? Probably not. Are certain events going to be exacerbated by a warming atmosphere? Yes, to an extent, but it’s not going to have caused them necessarily—floods aren’t starting to occur just because there’s climate change,” he said.

However, he noted, climate change could add an element of severity, so it is necessary to understand how much more frequent or severe those events could be.

“That requires an understanding of how they’ve been modelled to this point. Flood, for example, has not been particularly well modelled in the industry—or rather, the models that exist haven’t been used as extensively. That means it’s going to be hard to determine what element climate change has played.”

Looking ahead to 2023, Jones said it is possible losses will reach the same scale as this year, but he believes the industry has the tools to address the risks.

“It’s a case of applying those tools to the fundamentals of insurance,” he said. “The industry needs to be a little more transparent around the business it writes and how it communicates that. Modelling in general is not something that’s new to the industry, cats aren’t new either—we have all the tools and information available to us.”

He added that while the industry is engaging with governments to address the risks faced by their populations, the recent events highlight the need for more dialogue.

“There needs to be broader engagement. These disasters have an impact on both insured and uninsured losses and we are seeing the losses increase,” Jones said. “The industry needs to be engaging with governments and other organisations around risk mitigation, particularly as we head into a potential climate-changing era.”