Risk assessment efforts need to be rebalanced to make secondary perils such as severe storms, floods and bushfires a higher priority, Swiss Re’s latest Sigma report warns.

Primary perils such as earthquakes and tropical cyclones are well-monitored by the insurance industry but secondary-peril risks less so – even though secondary peril events accounted for more than 70% of natural catastrophe insured losses last year, mostly due to severe convective storms and wildfires.

Insured losses from all disaster events around the world could rise as high as $US300 billion ($394 billion) in a single year if both a peak loss-inducing hurricane season and multiple secondary peril events coincide, Swiss Re estimates.

Last year, insured losses were $US89 billion ($116.98 billion) from 274 events, the fifth highest on Sigma’s records, driven by storms and bushfires in Australia and the US and accumulated losses from many small and mid-size events.

A record-breaking 30 named storms formed during the hurricane season, though insured losses of $US21 billion ($27.6 billion) were relatively modest.

Swiss Re says 2020 “serves as a reminder” of the peak-loss potential from primary perils as last year's North Atlantic hurricane season was very active and it was “just chance” the storms hit areas of low population density or insurance penetration.

“History indicates a similar trend of rising losses from primary perils, suggesting that future peak-loss scenarios could also grow significantly,” the Sigma report says. "Risk model build also needs to de-bias away from reliance on historical data observations, which may not be a good proxy for present-day conditions,” it adds.

“While COVID-19 was a stress test for society and the economy, it has an expiry date – climate change does not,” Swiss Re Group Chief Economist Jérôme Haegeli said. “Climate change is already becoming visible in more frequent occurrences of secondary perils, such as flash floods, droughts and forest fires.”

In the last decade, severe convective storms were the main loss-inducing peril in Australia and North America, and have contributed more than half of global insured losses from secondary perils.

In Australia/Oceania, primary perils accounted for $US27.4 billion ($36 billion) in the decade to 2020, while severe convective storms made up $US9.4 billion ($12.36 billion), floods $US2.8 billion ($3.68 billion) and bushfire $US2.5 billion ($3.29 billion).

In North America, accumulated insured losses from storms in 2011–2020 exceeded those from all primary perils together.

Global economic losses from natural catastrophe have increased 1.6% between 1970-2020 on a 10-year moving average basis – indicating the larger scale of losses that could result if an event of the past were to occur today given dynamics such as changing weather and wealth patterns.

Swiss Re’s Head of Cat Perils Martin Bertogg says both peril categories are driven by the same loss-driving trends, including population growth, increasing property values in exposed regions and climate change.

“Given the dynamic nature of risks, re/insurers’ risk models need to increasingly consider forward-looking risk trends, such as climate change, urbanisation and socio-economic inflation – rather than relying on historical data observations – when assessing the potential magnitude of losses,” he said.

The worst man-made event last year was the Beirut explosion, which caused insured losses of around $US1.5 billion ($1.97 billion).