Secondary perils: rising waters in the Americas

Secondary perils are becoming a primary driver of losses. They represent the new norm and the problem is we know far too little about them. That's mainly because wildfires, severe convective storms and floods have, until recently, defied traditional modeling.

Take flooding, for example. Floods affect more people around the world than any other peril and last year illustrates the growing problem:

• Heavy rains and flooding from Hurricane Ida contributed to the costliest industry event of 2021, with insured losses of USD 30-32 billion. Flooding was responsible for over 60% of the deaths, as 55 of the 91 deaths were caused by drowning.
• Flooding in southwestern British Columbia in November 2021 claimed six lives, caused USD 3.4 billion in economic losses and USD .5 billion in insured losses.
• River flooding, flash flooding and surface water flooding which occurs when urban drainage systems are overwhelmed after a hurricane are some of the main secondary perils in Latin America. Cumulative insured losses from floods in the region from 2011 to 2020 totaled USD 17.2 billion, of which only 7.2% were covered by insurance.

Private insurers have been understandably reluctant to write flood insurance. In the last ten years, insurance has covered just 5% of the economic losses in emerging markets and 34% in advanced economies. It's estimated that two-thirds of annual expected losses from flood events in the US are uninsured.  

One of the reasons we know less about secondary perils is they've not been monitored as well as primary perils. But that's changing. Improved modeling has attracted an influx of capital and solutions into the private market. A risk once thought of as 'uninsurable' can now be underwritten with confidence.

Our sigma report on natural catastrophes in 2021 takes a comprehensive look at flooding – the causes and consequences – and how to build resilience against this complex and growing risk. It's also an opportunity for growth; we're here to help you underwrite policies with confidence and offer customers more complete coverage. Together, let's make the world more resilient.