The year 2025 begins with devastating wildfires across Los Angeles, underscoring the significant rise in insured losses from natural catastrophes in 2024. Global insured losses reached a staggering $140 billion, more than double the 30-year average of approximately $60 billion, according to a recent report by Munich Re.
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Hurricanes Milton and Helene, which ravaged the US, were the costliest natural disasters of 2024, accounting for a significant portion of the insured losses. Early estimates suggest that 2025 may already be on track to surpass these losses, with the Los Angeles wildfires potentially becoming the most financially damaging in history.
The Growing Threat of Non-Peak Perils
The ongoing wildfires near Santa Monica and Malibu are consuming some of the most valuable real estate in the US, impacting areas with median home values exceeding $2 million, according to AccuWeather Inc. The projected damage and economic loss from this disaster range from $52 billion to $57 billion.
Fires, floods, and severe thunderstorms fall under the category of “non-peak perils” in the insurance industry. These perils are expected to intensify due to climate change and have proven more challenging to transfer to capital markets through instruments like catastrophe bonds compared to “peak perils” such as hurricanes.
Climate Change: A Driving Force Behind Extreme Weather
“Non-peak risks have significantly increased and contribute a steadily growing share of insured losses from natural catastrophes,” stated Tobias Grimm, Munich Re’s chief climate scientist. This overall increase in natural catastrophes correlates with the rapid rise in global temperatures. 2024 was the hottest year on record, surpassing the critical 1.5C threshold above pre-industrial levels.
“Scientific evidence increasingly points to climate change as a crucial factor in the increasing frequency and intensity of weather disasters,” Grimm affirmed. Climate change is disrupting established weather patterns, as evidenced by the extreme flooding in Dubai and Spain’s Valencia region last year, resulting in billions of dollars in insured losses and significant loss of life.
Redefining Risk in a Changing Climate
“Dubai, for instance, isn’t typically considered a flood-prone area,” Grimm noted, highlighting the shift in perceived risk. Higher temperatures contribute to more intense rainfall and the rapid intensification of tropical cyclones. Hurricane Milton, which struck Florida in October, caused $25 billion in insured losses, narrowly avoiding a more catastrophic scenario in the densely populated Tampa area. Hurricane Helene, weeks prior, resulted in $16 billion in losses.
The total damages from natural disasters in 2024 reached $320 billion, the highest since 2021, with weather catastrophes accounting for 93% of overall losses and 97% of insured losses. Approximately 11,000 lives were lost due to natural disasters in 2024.
The Future of Insurance in a Climate-Challenged World
As extreme weather events surge, insurers are reevaluating risk and withdrawing coverage from certain areas. However, Grimm maintains that every risk is insurable “with the right premiums,” emphasizing that Munich Re does not “generally exclude regions from insurance solely due to climate change.” The increasing frequency and severity of natural disasters underscore the need for proactive adaptation and mitigation strategies in the face of a changing climate. The insurance industry plays a vital role in managing these evolving risks and ensuring long-term resilience.
