Lewis & Ellis Inc.

2020 one of the costliest years on record for P&C insurers

Property and Casualty Insurance
by Glenn Tobleman
2020 one of the costliest years on record for P&C insurers
2020 one of the costliest years on record for P&C insurers

For many who have been keeping tabs on the news over the course of 2020, it should come as no surprise that property and casualty insurers were hit hard. While the novel coronavirus pandemic certainly grabbed a large share of the headlines, there were also a number of huge storms and natural disasters that wreaked havoc on numerous regions across the U.S. and, indeed, around the world. All of them added up to one of the most expensive years on record in terms of P&C insurance claims.

One analysis from the Swiss Re Institute found that the industry-wide claims-related losses due to both natural and man-made disasters amounted to roughly $83 billion, of which $76 billion came from natural disasters suffered worldwide. The overall price tag marks the fifth-largest for a single calendar year since 1970, and up $20 billion from the previous year. That number is also slightly larger than the previous 10-year average of $79 billion.

Furthermore, the losses due to natural disasters were up 40% on an annual basis, primarily due to unprecedented wildfires in the Western United States. However, even the most active hurricane season on record — there had been 30 named storms as of publication — wasn't enough to match the damages caused in 2005 (when Hurricane Katrina devastated the Gulf Coast) or 2017 (when Category-4 storms Harvey, Irma and Maria carried a punishing triple-punch in the space of less than a month).

Altogether, 2020 falls behind only 2017 ($154.6 billion), 2011 ($146.3 billion), 2005 ($143.4 billion), and 2018 ($93.8) in terms of global insured losses. Swiss Re notes that the trend of the five costliest years in half a century all coming in the past 15 years is one that's likely to pick up speed thanks to global climate change.

A busy hurricane season wasn't the only thing driving insured losses in 2020.A busy hurricane season wasn't the only thing driving insured losses in 2020.

A closer look at wildfires
To what extent were the wildfires in the U.S. a significant driver of insured losses? According to Insurance Business News, RMS recently estimated that they will fall between $7 billion and $13 billion, which would represent something like 8-16% of the total estimate laid down by Swiss Re. As of Dec. 1, the blazes seen across Northern California carried an estimated price tag of $5-9 billion, while those in Oregon and Washington came in at $1-3 billion. The wildfires in Colorado had a total estimated price tag of as much as $1 billion.

Michael Young, RMS vice president of product management, noted that California in particular had never seen fires so devastating, with 69 major incidents burning at least 1,000 acres each, for a total of 4.4 million acres burned. Indeed, five of the six largest fires in the entire history of the Golden State took place this year. Oregon, too, suffered a number of devastating fires, fueled by strong winds seen throughout the state.

Of note is that the damage from the fires themselves isn't the only thing driving costs so high; insurers also have to pay significant prices when it comes to evacuating people who live in areas affected by wildfire, as well as damage just from the massive amounts of smoke these fires create, which are carried by high winds. Altogether, evacuation and smoke-related costs contributed to as much as 20% of insured losses in California and Colorado, and a stunning 35% in Oregon and Washington.

The big picture
When it comes to major natural disasters, defined as anything that would cost at least a few million dollars for insurers, the total number of events seen around the globe in 2020 amounted to more than one per day, as of the end of November. These include everything from hurricanes and wildfires to earthquakes and winter weather to droughts and flooding, affecting just about every corner of the planet, according to the latest Global Catastrophe Recap from Aon.

Of these incidents, about half occurred in the Western Hemisphere, and most were in the second half of the calendar year, thanks to an extraordinarily active Atlantic hurricane season and the aforementioned wildfires.

Regarding man-made damages
While it was an extremely costly year for insurers due to natural disasters, civil unrest in the U.S. also played a part in driving losses. A tracking firm called Property Claims Services found that losses related to civil disorder seen across the U.S. in spring and summer cost insurers as much as $2 billion, making 2020 the costliest year on record in this regard. According to Axios, this year outpaced notable events such as the damage wrought by rioting in Los Angeles in 1992, as well as the Watts Riots in 1965, even after an adjustment for inflation. Notably, the fact that incidents were reported in 20 different states, rather than being localized to a single neighborhood or city, as with previous incidents, was a major driver.

These are certainly all issues for P&C insurers to keep an eye on, and build that data into their plans for 2021 and beyond.



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