Munich Re, the world’s largest reinsurance company, has estimated insurance losses emanating from natural catastrophes at $120 billion in 2021. This sum places the year equal second as the most costly year for the industry, alongside 2005, the year of hurricanes Katrina, Rita and Wilma and 2011, which featured earthquakes in Japan and New Zealand. The costliest year for insurers and reinsurers remains 2017, with three large hurricanes, Harvey, Irma and Maria, causing devastation in parts of the USA and the Caribbean Islands and a total insurance cost of $146 billion. 

As ever, there is a significant difference between the total economic loss caused by natural catastrophes, the so called insurance gap. Total economic losses in consequence of natural disaster in 2021 were $280 billion. As the most significant events were on the US mainland, where penetration of insurance coverage tends to be higher, this gap was smaller than in some years, but more than 55% of catastrophe losses remain uncovered by insurers. The insurance industry would dearly like to close this gap.  

The most significant event for reinsurers in 2021 was Hurricane Ida, which left a trail of destruction from Louisana in the South of the USA, right up to New York and New England. Wind damage in the South  and heavy rainfall and flooding in the North East left insurers with an estimated bill of $36 billion. Extreme cold centred on the state of Texas in February, caused around $15 billion of insurance losses, while convective storms and tornadoes, unseasonably in December last year, caused an estimated $4 billion of insured damage. Elsewhere, the most significant event was a low pressure system, called storm Bernd, which caused flooding across Western Europe, costing insurers $13 billion. Germany was most severely impacted, accounting for around 75% of the total insurance bill. 

Torsten Jeworrek, Member of the Board of Management at Munich Re, commented, “The images of natural disasters in 2021 are disturbing. Climate research increasingly confirms that extreme weather has become more likely. Societies need to urgently adapt to increasing weather risks and make climate protection a priority.

“Insurers meet their responsibilities by covering a portion of the risks and losses. By applying risk-adequate premiums, they put a price on natural hazards, thereby encouraging carefully considered behaviour to limit the losses. At the same time, severe volcanic eruptions and earthquakes in 2021 showed that we should not overlook these categories of natural disasters either.”

The full report from Munich Re can be found here.