Secondary perils brought into the limelight -are they taking on the leading role?

31 August 2023 — Daniela GHETU
Secondary perils brought into the limelight -are they taking on the leading role?

Secondary perils, namely the natural risks producing small to mid-sized loss events, were initially called so to diferentiate them from the primary perils, those of catastrophic dimensions and nature as earthquakes and huricanes. Nowadays, their cumulated impact became similar to a “Death by a Thousand Cuts” scenario, an article of Moody’s RMS blog reads.

“In the past decade, however, the catastrophe risk landscape has undergone significant changes. The insurance industry has witnessed a significant increase in losses from secondary perils which have also been exacerbated by factors such as exposure spread, climate change, and economic development.These once ’secondary’ perils have therefore moved into the spotlight, and their financial impact on insurers and reinsurers has grown significantly,” reads the articles signed by Rob Stevenson, Senior Client Director, Moody’s RMS.

As such, secondary perils’ cumulative effect has led to alarming levels of loss for many (re)insurers, becoming a rather “silent” threat that adds a lot to the huge losses caused by single primary perils. The trend was particularly visibile in the recent years, when the climate change caused a dramatic increase both in the frequency and severity of such events.

The author cites examples as the the U.S. wildfires in 2018, and the 2021 flooding in western and central Europe, and most probably the current year may provide for another set of dramatically high figures. He also cites the example provided by a the Gallagher Re report for the year 2022, when insured losses from secondary perils totaled USD 73 billion, while primary perils comprised USD 67 billion.

It seems that applying these perils a rather dismissive label by calling them “secondary” is becoming highly inappropriate and misleading with regard to their potential impact.

Read the full blog post to find out more about the secondary perils’ potential impact on the re/insurers’ business.