Insurance industry in storm: record profits despite natural disasters!

Insurance industry in storm: record profits despite natural disasters!

The insurance industry is currently experiencing a double-edged sword: While major insurers are reporting extensive losses from natural disasters, they are also recording record profits. According to a report by Evidence Network Losses from natural events rose to USD 320 billion last year, of which almost USD 100 billion had to be covered by insurance companies. The increase in natural disasters is seen as undeniably directly linked to the rise in global temperatures.

Arne Holzhausen from Allianz warns of a clear trend: “The growing number of natural disasters and the associated, rapidly increasing damage” must be taken seriously. Munich Re is also forecasting an above-average hurricane season, although it remains unclear how many storms will cause fatal devastation.

Adaptations to new climatic conditions required

The data from the General Association of the German Insurance Industry (GDV) is clear: in 2023, losses from natural hazards in property and motor vehicle insurance amounted to 5.6 billion euros. Jörg Asmussen, General Manager of the GDV, emphasizes the need to adapt cities, infrastructure and buildings to the new climate conditions. In particular, the increased frequency of flood events is seen as a result of climate change, and society is inadequately prepared for it. The Natural Hazards Report 2023, published by GDV was published, contains comprehensive data with around 70 tables on damage caused by natural hazards.

The forecasts are alarming: damage could at least double by 2050, primarily due to extreme weather events such as heavy rain, floods, storms, hail and fires. In order to counter the consequences of climate change, measures to combat and adapt are urgently needed. According to Asmussen, Germany should intensify its efforts to achieve the Paris climate goals.

Financial risks and innovative solutions

Insurance companies are not only faced with the challenge of increasing losses, but also with an increase in financial risk transfer. They try to pass on the risks to the financial market through innovative financing instruments such as catastrophe bonds (CAT bonds). These trading contracts offer high interest rates, but also carry significant risks. Dirk Schmelzer from Plenum Investments explains how these CAT bonds work and what challenges are associated with them.

Holzhausen calls for a global rethinking of damage prevention. Suggestions for improvement include building storm- and earthquake-resistant buildings and protecting infrastructure from flooding. Given the growing costs for those affected, it is essential that insurance companies invest in loss prevention measures.

The current situation presents the insurance industry with massive challenges and requires coordinated action from politics, business and society. This is the only way to sustainably manage the increasing risk of natural disasters.