Never Mind COVID, 2020 Was a Catastrophe for US Insurers

In case you forgot, the year that just passed brought an unprecedented number of catastrophes — not to mention COVID-19.

Three insurance industry reports issued this week chronicle just how bad 2020 was for property insurers. CoreLogic released a chronology of natural disasters that struck the United States. Aon published a lengthy report on economic losses caused by weather-related natural disasters globally. Karen Clark & Co. provided a deep dive into the type of damages caused by an Atlantic hurricane season that brought a record 30 named storms.

“In addition to reeling from the health and economic shock of a global pandemic, the U.S. was hit with one natural disaster after the next, marking the sixth straight year with more than 10 weather and climate events surpassing $1 billion in economic losses,” CoreLogic summed up in its 2020 Catastrophe Report.

Aon reported in its Weather, Climate & Catastrophe Insight report that natural disasters caused $268 billion economic losses worldwide in 2020, including $97 billion in insured losses. There were 28 individual natural disaster events that cost $1 billion or more in insured losses, 22 of them in the United States.

“These record numbers were driven by 14 severe convective storm events, of which 12 occurred in the United States alone,” Aon said.

While the number of disasters around the world set a new record in 2020, globally 2020 was not remarkable in terms of economic loss. Aon said worldwide economic losses were 12% lower than the average of the past decade.

It was a different story in the United States, where economic losses caused by natural disasters were 28% above the average of the past decade. Aon said 76% of the global losses were recorded in the United States.

“There were 28 individual billion-dollar natural disaster events in 2020 in terms of insured loss, the highest total ever recorded,” the Aon report says.

All of the top 10 insured loss events for 2020 impacted the US. Hurricane Laura was the No. 1 disaster, with $10 billion in insured losses, followed by $8.3 billion in losses from the derecho that struck the Midwest and $3.5 billion in losses from Hurricane Sally.

And then there were the wildfires.

Wildfires are considered secondary perils because losses are measured by individual events, keeping total losses below catastrophe levels. Aon, however, noted that 2020 marked the third time in the past four years that global insured losses from wildfires exceeded $10 billion.

CoreLogic’s chronology provides detail. In August a dry lighting storm ignited 650 wildfires in California, including the August Complex blaze that formed from 37 separate blazes to become the largest wildfire in state history. In December, four major wildfires scorched Southern California.

Aon said there were five individual billion-dollar fires in the Western United States, a national record. Economic losses topped $19 billion worldwide.

Hurricanes, of course, were the biggest claims-maker in the US.

The Karen Clark & Co. report said in addition to a record number of named storms, 2020 also brought a record-breaking 12 tropical storm and hurricane landfalls in the US. Meteorologists had predicted above-normal storm frequency because of record-high ocean temperatures and low wind shear in the Atlantic — ideal conditions for cyclone formation.

Nature complied with the forecasts, but KCC said the $22 billion in total insured losses was relatively low compared to the frequency of storms. The season was marked by “a few significant events and multiple small event losses.”

Only one major storm made landfall — Hurricane Laura — and it avoided major metropolitan areas. The storm did strike Lake Charles (population 78,000), where it caused an estimated $50 million in damages to the 22-story, all-glass Capital One Tower, which was built in 1983. Hurricane Laura caused $9 billion in insured losses overall.

The KCC report provides a close-up view of the destruction and insights on designs that avoided damage. For example, external insulation finishing systems are a popular choice for commercial buildings because of the ease of installation and low costs. KCC, however, observed that the cladding is particularly susceptible to wind damage because of its light weight and how easily it detaches from the underlying structure.

KCC noted that elevated buildings are protected from storm surge, but are exposed to greater wind damage. Also, many homes in the path of Hurricane Laura were not raised high enough to escape inundation. KCC said vinyl siding was often stripped off of homes exposed to high wind, but masonry siding held up to the gusts. Similarly, sheathing that protects facia boards was sheared off, exposing trusses and interiors to damage from wind and blown water.

The Aon report noted how insurers struggled to quickly adjust claims while maintaining social distancing because of the COVID-19 pandemic. Public health measures “inevitably led to delays” in processing some claims, but insurers stepped up the use of drones to conduct survey assessments and relied on their customers to provide photos and videos of damages through smart-phone apps, the report says.

CoreLogic said an increasingly volatile catastrophe risk environment is shrinking profit margins for the housing finance sector, but the power of cloud computing has enabled risk models that can predict severity. Also, improvements in weather monitoring technology give insurer and lenders a more accurate understanding of events, leading to more resilient homes and businesses

About the photo: Flooding surrounds damaged homes Friday, Aug. 28, 2020, in Cameron, La., after Hurricane Laura moved through the area Thursday. (AP Photo/David J. Phillip)