Catastrophe losses spike as global temperatures edge higher
Gareth Stokes, Africa Ahead
The latest natural catastrophe statistics may not silence the occasional crackpot climate change denialist; but they go far enough to convince the rational thinkers among us that extreme weather events as a consequence of rising average annual temperatures are very, very real. Global professional services firm, Aon, is the most recent risk expert to weigh in with an assessment of economic losses due natural disasters through 2021.
Its 2021 Weather, Climate and Catastrophe Insight Report highlights $343 billion in economic losses for the year, up some 7.7% over the 2020 experience. The report delves into no fewer than 401 notable disaster events that include 50 instances of billion-dollar (or higher) economic loss events, with 20 of those events exceeding the billion-dollar insured loss threshold. The firm’s experience of insured versus uninsured losses echoes that of reinsurers Munich Re and Swiss Re, which also published their 2021 catastrophe estimates recently.
Munich Re reported that weather-related events in the US dominated the natural disaster landscape, with overall economic losses at approximately $280 billion. About 42% of this total, or some $120 billion, was recorded under the insured losses column. The Swiss Re Institute, meanwhile, estimated global insured catastrophe losses at $112 billion in 2021. Natural catastrophes accounted for the bulk of these insured losses, totalling $105 billion, and making last year the fourth-highest insured natural catastrophe experience on record, going back to 1970.
The insurance gap, being the proportion of natural peril losses that are not covered by insurance, is hovering around the 60% level on all three of the experiences reported on here. “Clearly there is both a protection and innovation gap when it comes to climate risk,” said Eric Andersen, president of Aon, in a media statement to coincide with the report. “As catastrophic events increase in severity, the way that we assess and prepare for these risks cannot solely depend on historical data; we need to look to technology like artificial intelligence and predictive models that are constantly learning and evolving to map the volatility of a changing climate.”
There is growing consensus that climate change is contributing to the rising frequency and severity of extreme weather events. Ernst Rauch, chief climate and geoscientist at Munich Re, and head of the reinsurer’s Climate Solutions Unit, commented that 2021 disaster statistics were striking “because some of the extreme weather events are of the kind that are likely to become more frequent or more severe as a result of climate change”. Rauch also pointed out that while extreme weather events could not automatically be attributed to climate change, “analysis of the changes over decades provides plausible indications of a connection with the warming of the atmosphere and the oceans”.
Certainly, each of the reports referenced for today’s analysis contained statistical evidence of rising global temperatures. According to Aon, 2021 is now the sixth-warmest year on record, with land and ocean temperatures at 0.84C above the 20th-century average. It added that the hottest temperature ever reliably measured on Earth was unofficially recorded in Death Valley, California, US in July last year, at 54.4°C!
As temperatures rise, it seems inevitable that the number of $10bn-plus insured perils will skyrocket in future reporting periods. According to Swiss Re, the two costliest natural disasters for 2021 both occurred in the US, with Hurricane Ida causing an estimated $32bn in insured damages and winter storm Uri causing billions more. The costliest event in Europe was the July flooding in Germany, Belgium and nearby countries, causing up to $13bn in insured losses and economic losses of above $40bn.
Insurers and reinsurers will have to explore innovative ways to mitigate natural catastrophe risks, so as to alleviate the future financial impact on the insurance industry. “The impact of the natural disasters we have experienced this year once again highlights the need for significant investment in strengthening critical infrastructure to mitigate the impact of extreme weather conditions,” concluded Jérôme Jean Haegeli, Swiss Re’s group chief economist, in his comments on the Swiss Re sigma statistics. He proposed that the insurance industry partner with the public sector to “strengthen society’s resilience to climate risks”.
This proposal was independently seconded by Steve Bowen, meteorologist and head of catastrophe insight at Aon, who concluded: “We can no longer build or plan to meet the climate of yesterday… the path forward for organisations and governments must include sustainability and mitigation efforts to navigate and minimise risk as new forms of disaster-related volatility emerge.”
