Just 36% of the losses were covered by insurance, creating a protection gap of 64%, according to Aon
A total of 416 natural catastrophe events in 2020 resulted in economic losses of $268 billion – 8% above the average annual losses for this century – as costs continue to rise due to a changing climate, more people moving into hazard-prone areas and an increase in global wealth. This is according to a report by Aon.
Of this total, private sector and government-sponsored insurance programs covered $97 billion, creating a protection gap of 64%, which is the portion of economic losses not covered by insurance. This highlights the importance of addressing the underserved by ensuring that there is increased access to affordable insurance products in the future.
“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. This 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,” said Greg Case, CEO of Aon.
“In a highly volatile world, risk remains ever present, is more connected and, as a result, is also more severe – and 2020 has underscored this reality. It has also emphasised the need for enhanced collaboration between the public and private sectors, which will be essential to close the rising protection gap and build resilience against natural catastrophes.”
During the year, more than 8,000 people lost their lives due to natural catastrophes. Tropical cyclone was the costliest peril, causing more than $78 billion in direct economic damage. It was closely followed by flooding ($76 billion) and severe convective storm ($63 billion).
From a climate perspective, the National Oceanic and Atmospheric Administration (NOAA) cited 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.
Steve Bowen, director and meteorologist for Aon’s Impact Forecasting team, commented: “The world continues to evolve as it is faced with new challenges around natural perils. 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 continues to accelerate with renewed urgency.”
Significant regional events during 2020 included:
- Costliest year on record for global severe convective storms led by historic US derecho
- US mainland endured a record-breaking 12 named storm landfalls, including six hurricanes
- Super Typhoon Goni struck the Philippines as the strongest landfalling storm ever recorded globally at 195 mph
- Ciara became Europe’s costliest windstorm since Xynthia in 2010
- Drought conditions reduced agricultural crop yields in Brazil and Argentina, burning 30% of the Pantanal Region
- The most widespread Yangtze River Basin floods since 1998 caused $35 billion of economic damage in China’s monsoon season