Insurance fails to address 64% of global economic losses in 2020 – Aon report
By Zainab Iwayemi
Global private and government-sponsored insurance programmes left a coverage gap of 64 per cent in 2020 as only $97 billion were covered for a total of 416 natural catastrophe events that resulted in losses of $268 billion, representing 8 per cent above the average annual losses for the century, a catastrophe loss report by Aon, a global professional services firm, has revealed.
Aon, which provides a broad range of risk, retirement and health solutions, in the report stated that the 64 per cent represented the portion of economic losses not covered by insurance.
The report, which evaluates the impact of global natural disaster events to identify trends, manage volatility and enhance resilience, also shows that more people are moving into hazard-prone areas, causing an increase in global wealth due to a changing climate fueled by rising costs from catastrophes.
Consequently, the report noted that while the year 2020 saw more than 8,000 people lose their lives due to natural catastrophes, the tropical cyclone caused more than $78 billion in direct economic damage. This was closely followed by flooding at $76 billion and severe convective storm at $63 billion.
This aligns with the report by the National Oceanic and Atmospheric Administration (NOAA) citing 2020 as the world’s second-warmest since 1880 for land and ocean temperatures at +0.98°C (+1.76°F) above the 20th-century average.
In addition, the report shows that catastrophic event will increase in frequency and intensity and in ways that are impossible to predict using conventional risk assessment methods. Similarly, it noted that while catastrophe modeling has been conducted primarily in the private sector, academia and government scientists have taken the lead on the science of climate change.
Based on the report, Aon has advised the insurance industry to develop more of a bespoke view of risk, which will, in turn, allow them to reduce their dependence on model vendors to measure their catastrophic risk and gain greater confidence in their risk tolerance thresholds.
Speaking on the report, Greg Case, chief executive officer of Aon, noted that future organisations will need to deal with more than one catastrophe at a time.
“The global response to the socioeconomic volatility caused by the COVID-19 pandemic has increased focus on other systemic risks – particularly climate change – and is causing a fundamental reordering of business priorities.
“The report highlights the increasing likelihood of connected extremes and reinforces that leading organisations of the future will be defined by their ability to manage the global implications of concurrent catastrophic events,” Case said.
Similarly, Steve Bowen, director and meteorologist for Aon’s Impact Forecasting team, consented to the view that the world will witness new challenges around natural perils.
He said: “While many private and public sector entities primarily focus on physical and human hazard risks, an increasing number of global regulative bodies are further pivoting towards how to handle emerging transitional and subsequent reputational risks. This is especially true as the financial and humanitarian risks surrounding climate-enhanced events become more evident on a daily basis. Focus at the corporate and federal levels will be critical around investments in risk mitigation, resilience, and sustainability as the landscape around climate change solutions continue to accelerate with renewed urgency.”