The National Oceanic and Atmospheric Administration (NOAA) recently announced a significant change that could impact the insurance industry. The agency will stop updating its database of climate and weather disasters that have caused at least $1 billion in damage, effective after the year 2024. This decision has raised concerns among insurers who rely on this data for various aspects of their business.
AM Best, a well-known financial strength rating agency for the insurance industry, expressed that this move could hinder insurers’ ability to track losses from secondary perils. These include events like wildfires, floods, and severe storms, which are becoming more common and costly, especially in North America.
Sridhar Manyem, a senior director at AM Best, emphasized the importance of having a reliable data source. He pointed out that insurers use this information to model risks, set prices, and manage reinsurance. It also helps them understand the difference between insured losses and overall economic losses, which is crucial for improving how insurance works.
The decision comes after a year marked by 27 weather events that each caused over $1 billion in damages. Manyem noted that if more databases are discontinued, it could require changes to financial products like catastrophe bonds, which depend on NOAA’s measurements.
While some countries have agencies that track similar data, Manyem suggested that private companies might need to step in to fill the gap left by NOAA. However, establishing credibility and trust in such data could take time.
This change could have far-reaching implications for the insurance market, affecting how risks are assessed and managed in the face of increasing climate-related challenges.