A combination of hurricanes, wildfires, cyclones, and droughts led to two of the costliest years ever in terms of weather and climate-related disasters. The combined economic toll of all natural disasters for both years was $675 billion – with insurers covering roughly one-third of that cost. In fact, 2018 alone saw 42 separate billion-dollar natural disaster events and a global economic loss of $225 billion.
Steve Bowen, meteorologist and head of Catastrophe Insight at Aon, notes that while natural disasters are inevitable, how we prepare for them can play a vital role in finding workable solutions to lower the human and property risk from future shocks.
The regional numbers in terms of damages due to natural catastrophes highlight what’s at stake.
South America, for example, suffered an economic impact to the tune of at least $5.1 billion, of which only 5 percent was insured. An extended drought in Argentina, not a commonly insured peril within the region, contributed to this wide gap between economic and insured losses. And 2018’s Hurricanes Michael and Florence in the U.S. racked up economic losses of $32 billion or more, half of which was insured.
In EMEA, a particularly bad year of droughts caused more than $10 billion in economic losses, and combined natural disaster events caused more than $10 billion in aggregated losses for insurers.
But perhaps the greatest economic loss recorded was in the APAC region, which experienced 150 separate natural disaster events* and $89 billion in economic losses. According to Christopher Coe, head of agriculture at Reinsurance Solutions Asia at Aon, these natural disasters make agriculture in the region particularly vulnerable.
What’s Next: Building Resilience
With insurance only covering $90 billion of the $225 billion in total losses, the 60 percent insurance protection gap presents opportunity for organizations across industries to come together to close the widening gap, states Andy Marcell, chief executive officer of Reinsurance Solutions, Aon.
With increased natural disasters worldwide, various stakeholders – from organizations to governments to communities – are looking for ways to build resilience. Greg Lowe, global head of Sustainability and Resilience at Aon, notes that while organizations are well-versed in managing individual risks, additional opportunity exists for the insurance industry to advance the topic: “Cooperation between policymakers, urban planners, risk managers, engineers, investors and insurers needs to be much deeper to build the economy-wide resilience we need,” said Lowe.
*To be considered an event, it has to meet at least one of the Aon-defined thresholds below:
2,000+ damaged structures or filed claims
$50+ million economic loss
$25+ million insured loss
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