The financial cost of weather-related disasters reached unprecedented levels in 2023, with a record number of events each costing insurers more than $1 billion. This surge in costly natural catastrophes highlights the growing impact of climate change on global economies and the insurance sector.
There has been a significant increase in deadly wildfires, tropical storms, droughts, and floods around the world. These extreme weather events are more frequent and severe, straining the resources of nations and insurers. According to a recent forecast, the insurance industry should now prepare for about $151 billion in annual losses from natural disasters, with the potential for even more significant financial effects when the weather becomes more harsh.
Several factors contribute to these escalating losses, highlighting how climate change and urban expansion create a perfect storm for insurers. The increased exposure to risk as populations expand into exposed areas is one. In the US in 2023 there were 28 high-cost disasters, including major storms and hurricanes, adding immense pressure on both public resources and private insurers. The US losses from billion-dollar disasters over the past seven years (2017-2023) add up to more than $1 trillion.
The National Oceanic and Atmospheric Administration (NOAA) points to two major trends driving the rise of billion-dollar disasters. The first is the increasing frequency and intensity of extreme weather events, mainly attributable to rising global temperatures. As the planet warms, many regions have suffered more prolonged droughts, more intense storms, and hotter, more widespread wildfires. The second trend is the continued development of housing and infrastructure in vulnerable areas, such as coastlines and fire-prone regions. As more people move into these at-risk zones, scope for significant financial losses grows.
The United Nations has echoed these concerns, noting that climate and water extremes have increased five-fold over the past 50 years. A recent report, however, from the UN’s World Meteorological Organisation found that advances in early weather warnings and disaster management have mitigated the human cost of these events. While the economic toll is rising, the number of fatalities has decreased, thanks to better preparedness and response systems. Despite this progress, the same report attributed more than 91 per cent of climate-related disasters to developing countries, particularly affecting North American and European regions. A trend that could lead to more climate-driven migration across western nations.
