Re/insurers must beware of catastrophe ‘blind spots’: TigerRisk

It’s time to stop being surprised and get to grips with “non-modelled” natural catastrophe losses as the frequency and severity of extreme weather events driven by climate change continues unabated.

That is according to Anna Neely, head of cat response and R&D lead at TigerRisk Partners, speaking in a video interview with IntelligentInsurer.com, the website and digital hub for news, interviews, analysis and debate.

Neely confirms what re/insurers have seen for several years: events that fall outside the traditionally modelled nat cat category are continuing to increase rapidly, resulting in significant losses for the re/insurance industry.

In 2021 and recent years, Neely said, there have been numerous examples of weather-related “surprises” that suggest re/insurers should stop being surprised and accept this as the new norm for the industry.

“We should expect almost anything,” she said. “When it comes to climate change, we know that there will be more events beyond the scope of what’s typical. While I don’t expect to see new perils to suddenly emerge from climate change, there may be a lengthening of certain natural catastrophe seasons as well as more rainfall/flood events.”

2021 was another costly year for the insurance sector. Hurricane Ida drove the biggest share of insured losses, followed by the flash floods in Europe. These events, coupled with subsequent natural disasters such as the Texas winter storm and December tornadoes, again thrust non-modelled risks into the spotlight.

Broadening the scope

According to Aon’s 2021 Weather, Climate and Catastrophe Insight, there were $343 billion in economic losses in 2021, $329 billion of which resulted from weather and climate-related events, making last year the third-costliest year on record. While losses were up from 2020, the number of notable disaster events decreased slightly, demonstrating the heightened costliness and severity of these events.

Some other significant facts from the report included the fact that European floods in July were the costliest disaster on record for the continent at $46 billion; wildfires increased in prominence as conditions have become more conducive for rapid fire spread; and 2021 was the world’s sixth-warmest year on record.

Neely reiterates that the industry as a whole needs to take on board such stats and expect the unexpected. “We don’t typically expect tornadoes in December but doesn’t mean they can’t happen,” she said.

“We’ve seen other events play out in not exactly the way that models consider them. The mechanism that made the losses so extreme in Texas is not considered in the models.”

Nat cat risks are evolving with different patterns each year, Neely suggests. “High activity doesn’t necessarily equate to high losses any more,” she said.

“Hurricane is no longer just a wind event—it is both wind and water. We need tools and abilities to account for that kind of losses from hurricanes.”

Neely believes the re/insurance industry needs to become more attentive to “blind spots” in the traditional vendor models, and better understand their “limitations” when targeting the unknowns.

“With these unmodelled events or surprise events, having a good sense of what the models can and can’t do, their limitations and what they focus on is very important,” she said.

“Additionally, we need to go back to fundamentals, look at concentration management, and look at scenarios rather than just probabilistic modelling.

“There’s a whole suite of risk management tools out there that can help you not over-rely on catastrophe models,” Neely stated.