Insights
By:
The Coming Storm
Meanwhile, AI-boosted cyber-crime continues to rise unabated. Both are helping to drive insurance premiums ever higher. There’s little doubt that we live in a fundamentally ‘riskier’ world than the one we grew up in.
Unfortunately, these rising risks are mostly man-made. The most immediately evident is the mounting climate crisis, which is causing ever-more extreme and aberrant weather conditions around the world, and with ever greater frequency.
At the same time, thanks to the rise of ‘hactivists’, Cybercrime-as-a-Service, and government-sponsored ‘threat actors’, cyber-attacks have become a part of everyday life. According to reinsurer Munich Re, there were over 420 million attacks on the energy, transport and telecommunications sectors in the year to January 2024 – an increase of 30% since 2022.
Clouds on the horizon
Recent years have seen a material escalation in extreme weather events. In 2024, in the US alone, there were 28 separate weather-related disasters that each wrought over $1bn of damage. As the infographic (inset) shows, that’s nine times as many extreme weather events than in 1980.
The speed, frequency and severity of weather-related catastrophes is changing so fast that the past no longer offers much of a guide to the future. According to Munich Re, the global cost of climate-related disasters hit $320bn in 2024, this was up a third on the previous year.
Insurers are trapped between rising occurrences, rising property and asset values (with the write-off rate for US cars rising as they become more sophisticated and more expensive to repair), and the rising cost of building materials.
The result has been a massive escalation in insurance premiums, record profits for US insurers, and increasing numbers of households, especially in California and Miami, that can longer insure their properties as carriers withdraw. There are already some 20,000 US home foreclosures a year due to this, with estimates from the US modelling group First Street that such repossessions will hit 84,000 a year within the decade.
The situation is little better in the UK where the reinsurance market for flooding has reached saturation point and insurers and now selling catastrophe bonds in record numbers to assuage their liability.
More broadly, it’s now well-established that intense weather has a massive impact on the price of food stuffs. The arrival of such events can be tracked in everything from wheat and grain prices to dairy, chocolate, coffee and meats. As food price inflation is a key driver of overall inflation, especially in emerging market economies, such climate disasters also indirectly drive up insurance premiums, along with the price of everything else.
As a result, rising insurance bills around the world have left both policymakers and regulators concerned that climate change poses a systemic threat to the financial system.
Cybercrime-as-a-Service
Data security has become a global battle front. It’s a pervasive, multi-faceted problem not limited to governments and their militaries, Cybersecurity is a genuine and daily threat to both companies and individuals all around the world, which the World Economic Forum has characterised as being one of the top 10 global risks.
Meanwhile, 2025 is expected to see the number of internet of things (IoT) connected devices hit 20 billion (roughly three times the global population) with every new device and digital service offering adding a new potential entry point for cyber-attack.
Although once the stuff of cheap fiction, the seeming ease with which major organisations can be humbled by cyber raiders has now become humdrum. The 2024 cyber-attack on UnitedHealth, carried out by the Russian ‘Black Cat’ organisation, netted the personal information of an estimated 190 million Americans.
Later that year, a teenager from Walsall was arrested for hacking Transport for London (TfL) and downloading 5,000 customer sort codes and bank account details. By May of 2025, major UK retailers such as Marks & Spencer, Harrods and the Co-Operative Group were simultaneously hobbled by such cyber-attacks, to great financial cost.
For M&S, the attack is thought to have wiped £300m from annual profits, delivering a £750m drop in its share price, with UK retail-sector insurance brokers expecting to see a 10% hike in business premiums due to such cyber-attacks.
More worryingly, industry experts such as Munich Re and Mandiant Cyber Underwriting Threat Intelligence, point to the rise of Cybercrime-as-a-Service, when it comes to ransomware. For those shopping for such packages there are already platforms and subscription-based malware and AI-enabled hacking tools.
Ironically, the arrival of AI will continue to lower the barriers for entry for criminal ransomware entrepreneurs. As elsewhere, it’s likely to drive great scale, automation, speed and precision. It may even provide such parties with a competitive advantage.
As Munich Re warns in its latest report, “The emergence and application of multi-agent AI systems for good and evil will evolve.”
Currently, the estimated costs of cybercrime vary greatly. One of the more conservative estimates is offered by Cyber Crime Magazine. It estimates that cybercrime and its consequences will cost between $1.2trn and $1.5trn by the end of 2025. This allows for an estimated $50bn to $100bn in insurance payouts; $150bn to $250bn in direct business losses; $500bn to $1trn in business downtime; $100bn in brand damage; and $200bn+ for nation-state cyberattacks.
Playing the riskier world theme
Insurance provides a vital pillar for the business world and premiums are rising across the world thanks to climate change and cybercrime. But companies are reliant on insurance to manage their risk exposures and so allow them to operate. This means insurance is always in demand, regardless of the economic backdrop.
Although some investors gain exposure to the ‘riskier world’ theme by investing in the big insurance carriers, we steer clear of such business as they’re necessarily prone to sudden claims costs. For this reason, we prefer to invest via the best-in-class global insurance broker AJ Gallagher, which is exposed to premium increases through its commission-based structure, but not to the rising tide of claims.
Likewise, we’re invested in Verisk, which supplies cutting-edge data to US insurers and other underwriters around the world and is positioned to benefit greatly from the increasing frequency of extreme weather events.
Our position in Copart, one of the leading US salvage vehicle auctioneers, with a million customers worldwide, is also well positioned to benefit from the riskier world theme. It collects and auctions damaged vehicles which are increasing in value all the time due to the rising write-off rate for damaged US vehicles.
