Author: Mark Hubbard
The dial is shifting for extreme weather, both in terms of frequency and severity. Since 2017, the US has endured an average of 15 natural catastrophe (Nat Cat) events per year — compared to 10 in the previous decade and six prior to 2007.1
Although no stranger to extreme weather, it's rare for California to experience hurricanes or tropical storms. However, for the first time since 1939, in August tropical storm Hilary made landfall in California. With predicted losses estimated to be close to USD 600 million, the damage isn't comparable to extreme weather on the east coast, yet it illustrates how unprotected losses can ramp up a region’s annual Cat bill.
The number of wildfires is predicted to increase by 30% by 2050 and the UN Environment Programme has warned that governments are largely unprepared.2 Global wildfire losses totalled USD 69 billion between 2018 and 2022, with insurers paying out USD 39 billion in claims.3
While wildfires have recently spread across southeast Australia, Canada and parts of the Mediterranean, California has borne the brunt of economic loss. To date, Progressive, State Farm, Allstate, Nationwide and Farmers Tokio Marine, AmGuard and Falls Lake Fire and Casualty Co have paused or restricted new business in the state. The news has led some commentators to question whether California has become the most insurance-challenged state in the US, with other states such as Florida, Texas, Colorado, Louisiana and New York in hot pursuit.
Recent research from the non-profit organisation First Street Foundation found that 25% of all US real estate (roughly 35.6 million properties) faces increasing premiums and reduced coverage due to high climate risks.4
In September, the California Insurance Commissioner announced that it would expedite the introduction of rules for the review of Cat modelling tools to allow insurers to consider current and future risks, including climate change, when setting rates. Prior to this development, insurers could only factor in what had happened at the specific property when setting rates. However, insurers will only be granted this concession if they agree to write more business in the state, including wildfire risk.5
To learn how Nat Cat events in different parts of the world are shaping the future of insurance, read the seven-part report, How Is the Increasing Risk of Extreme Weather Changing Insurance?
