An anonymous modeller working in the insurance industry has claimed that parts of the sector are understating the risks posed by natural disasters. The modeller, who assesses global property risks, stated they are facing pressure to reduce forecasts for losses caused by disasters.
This pressure is reportedly aimed at making insurance more affordable and securing more business. While some questioning of models is justified, the modeller suggests that too often, it is done to artificially lower prices rather than to produce more accurate models.
The modeller expressed concern that this practice could lead to the insurance industry carrying more risk than it realises. They warned that if a major disaster occurs, the industry may not have sufficient funds to pay all claims, potentially leading to profound consequences for the global financial system, including business bankruptcies and a seizing up of the housing market.
Customers may be more exposed to climate-related risks than they realise, with many not budgeting for significant increases in premiums or the possibility of their homes becoming uninsurable.