The UK began to give names to storms back in 2014. The Met Office hoped this would “aid the communication of approaching severe weather” so the public be “better placed to keep themselves, their property and businesses safe”. [1]

If raising awareness was their aim, then it’s worked in my opinion. It certainly feels like we have a Brian, Deirdre or Ali more often than before.

The insurance industry will likely agree.

2018 saw the insurance industry pay-out $79bn in relation to natural disasters worldwide, making it the fourth most expensive year on record. In 2017, where the likes of hurricane Irma and Harvey hit built up coastal areas of the US, the figure stood at $150bn. [2]

Global Catastrophic Insurance loses, 1970-2018;


Disaster for insurance companies then? Well, no, not necessarily. Insurers are pricing this risk into their models and then into the premiums they charge. Such things as hurricane deductibles have even been introduced, where up to 10% of the value of your home may not be covered by storm damage.

Whilst the risk for insurance companies appears high, it pales into insignificance when you begin to count the economic costs of catastrophic weather events. Take, for example, hurricane Harvey where it’s estimated that the total economic cost was $80bn – much higher than the estimated $30bn of insurance losses. [3]

This is what’s known as the “insurance protection gap”. It’s the difference between what is insured and what needs to be insured. The US is considered to have a high insurance penetration rate but total losses that were covered by insurance stood at only 40% in 2017. The figure drops dramatically for emerging market economies. [4]

In the end, the protection gap becomes society’s burden.

US utilities firm PG&E illustrates this perfectly. The wild fires that devastated California last year left the company with potential liabilities of over $30bn after initial investigations suggested faulty power lines may have caused some of the blazes. The company was only insured for $1.4bn and subsequently filed for bankruptcy in January. [5]

Businesses with operations that are highly exposed to catastrophic weather events might need to adapt and it’s something investors will need to take into consideration for the future.

With changes in global climate conditions expected to increase the frequency of extreme weather events, and with densely populated areas thanks to increased urbanisation and a higher concentration of assets in exposed coastal areas – it looks like the perfect storm.




[3] RMS “2017 North Atlantic Hurricane Season Review”

[4] AON “Reinsurance Market Outlook 2018”


About the author

Euan Ker is a Sustainable Investment Analyst. He is responsible for analysing and monitoring environmental, social and governance factors within the Global Sustainable Equity Strategy. Euan joined us in 2014 as an investment implementation analyst with responsibility for implementing macro investment decisions across a number of fund-of-fund mandates, totaling some £13 billion under management. Prior to moving to the ESG Research team in 2018 his responsibilities also included asset class, regional and currency hedging overlays through derivatives. Euan has a 1st Class Honours degree in Management with Economics from Robert Gordon University. He has the IMC professional qualification and has 5 years’ industry experience (as at 30 November 2018).

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