Nat-cat loss creep will be a concern for those heading to the Monte Carlo Rendez-Vous de Septembre and cedants must ensure they are working with the most current models and data or face volatile reinsurance pricing.
In March Insurance Insider revealed Italian carrier Unipol had been forced back to the negotiating table by its reinsurers after delivering a significant increase to its Italian hail loss figure six months after the event, and very soon after its programme renewal date.
Continued inaccuracy and delays in loss reporting can only create distrust in the reinsurance relationship and result in more pricing volatility, and this was an extreme example of reinsurers’ patience running out.
Italian impact
The dramatic hailstorms that struck several regions in northern Italy last year highlighted the potential for loss-creep in areas where it has not historically been a trend.
As this publication revealed, industry loss estimates for the July 2022 event leapt from an initial $2.2bn in the immediate aftermath to more than $3bn by November and north of $5bn by early 2023.
Several factors drove the late and patchy reporting of the Italian hail loss – some localised and specific to this event, and some more systemic.
For this loss, sources noted that the hailstorms struck during a traditional holiday period, leading to a delay in the reporting of the original claims as policyholders took time to discover damage.
The relatively broad geographic reach of the event also put a strain on the supply of loss adjusters available on the ground in this instance.
Systemic factors
However, there are other more systematic factors that the Italian loss shares with other recent and similarly expanding European losses.
Sources said there is an over-reliance on outdated data in Europe, where cedants have not recently experienced the frequency and severity of weather events seen elsewhere and have therefore faced less urgency when it comes to updating their assumptions. In Italy, for example, hailstones the size of footballs were seen, leading to total loss increases in motor.
In addition, widespread underestimation of insured values, increases in repair costs in Europe, and urbanisation have all increased loss creep.
In some cases, insurers’ first estimates of costs have only been as good as the modelling agencies they use and with different agencies releasing different estimates at varying times and some only covering limited types of events, this can be a challenge.
Swiss Re warned in June that initial reserving must account for the real exposure at risk and be less biased towards historical data and a slow adjustment process.
It explained that this involves keeping exposure information up to date at the point of primary underwriting, including valuations that represent true replacements, and the timely capture of new investments by homeowners.
Underestimations around the severity of weather events are not limited to hail or limited to one region. Figures show the same has been true of events across Europe, including German Storm Bernd floods in 2021, the French hail event of 2022 and the Turkey/Syria earthquake last year and is also impacting smaller localised events.