International property
In this chapter of our Annual Insurance Review 2021, we look at the main developments in 2020 and expected issues in 2021 for international property.
Key developments in 2020In 2020 America suffered record breaking hurricanes and wildfires as the effects of global warming continued to make headlines. For only the second time, the official alphabetical list of hurricane names used by meteorologists was exceeded meaning forecasters had to turn to the Greek alphabet. Of the 30 recorded, 12 made landfall in the United States breaking the record of nine recorded previously in 1916.
As hot and dry conditions hit simultaneously, four million acres of land in California went up in flames last year (around 4% of the land area occupied by the state). Several other states also saw wildfires which were unprecedented in either frequency or scale.
Of course, natural catastrophes in 2020 were not confined to the United States. In the Asia-Pacific region Australia was devastated by bushfires which continued to burn well into January and Indonesia suffered flash floods that covered Jakarta and its neighbouring areas entirely.
The Swiss Re Institute estimates that global insured property losses from disasters for the first half of 2020 were USD31bn, up from USD23bn a year earlier. Natural catastrophes accounted for USD 28bn of the insured losses. The figures for the second half of 2020 are yet to be confirmed but are expected to be significant.
The COVID-19 pandemic has presented challenges for the entire insurance industry, and property lines were no exception. Property insurers have been presented with vast numbers of BI and DSU claims. Notwithstanding the fact those policies respond to "damage" events, that has not stopped insureds testing the scope and extent of cover under their policies. Policy terms, extensions and exclusions, have been poured over with the Supreme Court's decision on the FCA Test Case appeal is still pending at the time of writing.
What to look out for in 2021
Continued rate hardening is expected in response to catastrophe losses. The change in risk exposure also raises the spectre of withdrawal of capacity and challenges in terms of the insurability of specific regions. As a result, we expect the market for catastrophe bonds and other insurance linked securities to remain robust.
Longer term, however, climate change may result in reduced appetite from investors for catastrophe bonds. Some commentators consider the only solution to be stronger public-private partnerships. Insurance "pools" with government support are already being considered as a way of bridging the gap in cover for pandemic related risks, and equivalent facilities for catastrophe exposure may soon be tabled.
Communicable/notifiable disease extensions or exclusions which clarify the scope of cover for pandemic related losses will invariably become common place, with extensions for those risk coming at a premium.