Cat risk continues to evolve; protection gap not shrinking, warns Aon
An analysis of catastrophe losses in 2018 shows that the protection gap is not closing and that catastrophe risk has continued to evolve and is more complex than ever, according to Aon’s latest Weather, Climate & Catastrophe Insight: 2018 Annual Report.
The report, which evaluates the impact of global natural disaster events to identify trends, manage volatility and enhance resilience, noted that 394 natural catastrophe events led to a $225 billion economic cost of natural perils in 2018 led by major tropical cyclone and wildfire events.
Of that total, private sector and government-sponsored insurance programmes covered $90 billion of the total – the fourth-highest year on record. This means the protection gap, which is the portion of economic losses not covered by insurance, was 60 percent and at its lowest level since 2005, when insured losses also covered 40 percent of all losses.
The biggest driver of catastrophes in 2018 was the tropical cyclone peril following several significant landfalling storms. This included Hurricane Michael and Hurricane Florence (United States), Typhoon Jebi and Typhoon Trami (Japan), Typhoon Mangkhut (Philippines, Hong Kong, China), and Typhoon Rumbia (China). As a result, 2017 and 2018 resulted in the costliest back-to-back years on record for both economic losses ($653 billion) solely due to weather-related events, and for insured losses across all perils ($237 billion).
Andy Marcell, CEO of Aon’s Reinsurance Solutions business, commented: “2018 was another active year for global natural disasters. While there was not a singular “mega” catastrophe event, there were 42 billion-dollar events which aggregated to a slightly above-average year. The re/insurance industry continues to withstand the payouts backed up with $595 billion of capital but focus on managing the cost of changing climate and weather events by helping to close the protection gap.”
Additional major events during the year included a series of major wildfires in Northern and Southern California. The costliest insured loss event of 2018 was the Camp Fire at $12 billion, which also became California’s deadliest and most destructive fire on record.
Steve Bowen, Director and Meteorologist at Aon’s Impact Forecasting team, commented: “Among the takeaways from the events of 2018 was the recognition that catastrophe risk continues to evolve. The complex combination of socioeconomics, shifts in population and exposure into vulnerable locations, plus a changing climate contributing to more volatile weather patterns, is forcing new conversations to sufficiently handle the need for mitigation and resilience measures. Natural disasters are always going to occur. How well we prepare can and will play a key role in future event losses.”
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