Exposure growth, not climate change, has been by far the biggest driver of increasing property losses, says a leading risk modeller.

Karen Clark, a pioneer in catastrophe modelling, believes her industry has to step up and provide better risk assessment tools in support of reinsurers.

The founder of Karen Clark & Company told AM Best TV interviewer John Weber that, but for one exception, the growth in exposure has dwarfed climate change in its effect on rising property losses.

The one exception, she said, are wildfires.

She said: “Climate change is having the biggest impact on wildfire losses. KCC scientists do estimate that we've had about a doubling in losses since 1985, just from climate change impacts.”

Ms Clark admitted to being annoyed to see multi-decadal graphs purporting to show a climate change trend, even when the graph and data really show the effects of inflation.

Ms Clark said: “Normally, what that means is they've only adjusted for the consumer price index.

“But that is a small part of the story because what's been happening, of course, over the past decades, is that people have been moving to hazardous areas, particularly the coastlines, in droves. So, we have a lot more properties there.

“And what we're building today along those coastlines is not what we built 20 or 30 years ago. Nobody is building a 1,500 square foot rectangular home, any more.

“That's the wealth impact. So when we take into account demographics, the wealth impact, as well as construction cost inflation, and we run all of the historical events against today's exposures, we see very little or no trend at all.”

KCC scientists have studied the impacts of climate change on all the perils for years, and particularly hurricanes. The scientific consensus is that severity is increasing, but not frequency.

Ms Clark said: “So, when we account for that severity change, since 1900, we're getting about an 11 per cent increase in property losses.

“Compare that to the fact that in the past decade, it now costs twice as much to build the same single family home as it did ten years ago.

“The exposure growth impact, even over ten years, has been about 100 per cent for hurricane losses. So again, the exposure growth just really dwarfs climate change.”

KCC estimated that halfway through the year, severe convective storms accounted for $40 billion of the $50 billion in US natural catastrophe insured losses.

The KCC cofounder told The Royal Gazetteearlier this summer that severe weather losses in 2024 were expected to be larger than last year, when severe convective storms were the main drivers of insured natural catastrophe losses.

She said there was often a serious underestimation of SCS risks. Catastrophe models that are useful for the prediction of hurricane risks could not be used in gauging probable event scenarios for SCS.

It was what led to new models devised by KCC for frequency perils such as SCS, winter storms and wildfires.

She said it was the responsibility of risk modellers to make sure they're delivering to the market models that are proven to be accurate, so that insurers and reinsurers can have confidence in those models.

She told AM Best: “Over the past ten years, [KCC has] invested tens of millions of dollars and years of research in building accurate models for the frequency perils, severe convective storm, winter storm and wildfire.”

She said the advanced model created has the same fundamental structure and components as the traditional catastrophe models.

She added: “But what's innovative and advanced is the hazard component, which has a whole new methodology based on numerical weather prediction and physical modelling techniques.”

Even beyond that, she said: “We had to go through a methodological change where we're actually ground-truthing those models with every event. This is something the industry has never held the modellers accountable for, and that is accuracy.”

“For severe convective storms,” she said, “that's been over 200 events since 2018. So we have a wealth of information that has proven that our models are more accurate.”