Marsh Re, a reinsurance brokerage, has highlighted the increasing pressure on insurance providers to revise their reinsurance strategies. This comes as insured losses from secondary perils—including severe convective storms, wildfires, winter weather events, and flooding—are becoming a dominant factor in North American catastrophe losses.
In a recent analysis, Marsh Re pointed out that existing reinsurance frameworks have not fully adjusted to this evolving risk landscape. Many current programs, models, and pricing systems continue to focus primarily on mitigating the impact of infrequent, high-severity catastrophic events, rather than the more frequent, lower-severity incidents that are now causing significant financial impact. This mismatch, according to the broker, presents a fundamental strategic hurdle for insurers. Bridging this gap is increasingly seen as an opportunity for companies to differentiate themselves in a competitive market.
The report from Marsh Re further detailed the scale of these secondary peril losses, noting that insured severe convective storm damages in the US have exceeded $30 billion annually every year since 2020, with four of those years seeing losses surpass $40 billion. Additionally, the January 2025 Los Angeles wildfire was cited as the largest insured wildfire loss on record. Marsh Re emphasized that a season characterized by 15 moderate hail events could inflict more damage on an insurer's financial statements than a single 1-in-100-year hurricane, which traditionally forms the cornerstone of many capital models.
A significant exacerbating factor is the reinsurance market adjustment of 2023, which led to higher retentions. This development means that a smaller proportion of catastrophe claims are now covered by reinsurers, transferring more of the financial burden for frequent, smaller events directly to primary insurers' balance sheets. While catastrophe models for secondary perils are continuously improving, Marsh Re cautioned that validation remains inconsistent. Their tests revealed that model-estimated losses can fluctuate considerably between different releases, and results for identical portfolios can vary widely, particularly in less mature areas like urban conflagration.
Kim Roberts, North American Peril Advisory Leader at Marsh Re and the report's author, underscored the importance of applying rigorous discipline to secondary perils like hail, wildfires, and winter storms, similar to the approach used for capital planning and reinsurance strategy. This involves understanding portfolio exposures, validating models against actual claims data, and structuring protection around recurring mid-sized losses, not solely focusing on rare, extreme events. Marsh Re advises insurers to integrate vendor model outputs with their own claims experience and validate these results before making critical decisions. They also advocate for enhanced exposure-level mitigation data, ranging from roof age and construction details to community resilience measures, to refine risk assessments. Furthermore, insurers are encouraged to review their reinsurance program designs, particularly concerning loss accumulation, through annual aggregate covers, second-event reinsurance layers, and low-attachment structures. Marsh Re acknowledged the challenges some insurers face in securing these structures at reasonable prices, emphasizing that access to reinsurance capacity will increasingly depend on the accuracy of exposure assessments and will favor portfolios that effectively demonstrate precise and comprehensive risk modeling.
