Weather disasters behind 95% natural calamities in 2023 that cost over $1 billion, finds report

The year 2023 saw 398 natural disasters that caused $380 billion in damages worldwide. This is more than the $355 billion economic loss estimated in 2022, according to a recent report released on January 24, 2024.

The year recorded 66 billion-dollar economic loss events and 37 billion-dollar insured loss events. Weather-related factors were responsible for 95 per cent of the 66 natural disasters in 2023 that resulted in damages of at least $1 billion.

The estimate for damages is also 22 per cent higher than average for the twenty-first century, driven by powerful earthquakes and severe convective storms (SCS) in Europe and the United States, according to 2024 Climate and Catastrophe Insight report by risk-mitigation service provider Aon PLC. 

Insurance only paid out $118 billion, or 31 per cent, of the total damages incurred, the paper found. This indicates a significant “protection gap” of approximately 69 per cent as opposed to 58 per cent in 2022. After reaching its lowest point ever in 2022, the global protection gap rose to typical levels in 2023.

Insurance gap bigger than 21st-century average in climate-vulnerable regions

Even though natural catastrophes are becoming more frequent and destructive worldwide, the insurance coverage gap grew even more in 2023. Global insurance losses during the year exceeded $100 billion for the fourth year in a row and were 31 per cent above the 21st-century average.

The majority of disaster losses were covered in the United States, but most of the losses in three other regions — Americas (Non-US), Europe, Middle East and Africa (EMEA) and Asia and Pacific (APAC) — were uninsured, flagged the report. 

The widest protection gap of around 91 per cent existed in the APAC region, followed by 87 per cent for non-US Americas and the EMEA. 

The APAC’s insured losses came to about $6 billion, which was 60 per cent less than the average of $15 billion for the twenty-first century. Floods caused over 64 per cent of all losses in 2023, making them the most expensive threat for the fourth year running in the region. 

Disasters, especially floods and storms that affect a greater number of people, typically occur in lower- or middle-income countries, stated non-profit Christian Aid recently. 

Much of the flood losses in 2023 occurred in South and Southeastern Asia, where the insurance penetration remains very low. This includes India, where the seasonal floods caused economic losses of around $300 million. Floods in India killed at least 2,653 people in 2023, said the Aon report.

In the US, insurance covered almost $80 billion of the economic damage in 2023. Thus, the US ranks first and accounts for 70 per cent of the insured losses worldwide for the year. However, even in this developed nation, a significant loss (30 per cent) is still uninsured.  

Protection gap in regions

Severe convective storms most costly to insurers

The gap in insurance coverage for losses due to natural disasters demands attention in view of the number of large-loss natural hazard events, popularly termed as “billion dollar events” that reached record levels in 2023.

According to the report, in 2023 insurance only covered 40 per cent of losses caused by weather and climate change.

Earthquakes caused the most economic losses, but the SCS were most costly to insurers. In the US, there were at least 47 SCS, with insurance covering over 67 per cent of the total economic damage. For the first time ever, insured losses from the SCS surpassed $50 billion, and the preliminary figure is expected at $58 billion, up from the previous high of $44 billion set in 2020.

Severe convective storms are convective systems that are associated with extreme phenomena such as tornadoes, hail, heavy precipitation (rain or snow), strong winds, and lightning. As SCS-related economic and insured losses continue to increase, understanding the drivers behind this is crucial for insurers suggested Aon.

The intensity of tropical cyclones is increasing more quickly, staying at their peak over extended periods of time, and intensifying closest to the landfall point. This is a concerning pattern that points to greater losses for the risk in the future, said the report. 

Although, since 2000, severe convective storms and tropical cyclones have been the two most expensive occurrences for insurers overall, it is expected that SCS will overtake in the years to come.

These findings may worry insurers in the US who are already planning to cut out damage caused by hurricanes, wind and hail from policies underwriting property along coastlines and in wildfire country

For example, Allstate is amongst the five major US property insurers who have decided to stop writing coverages in some regions, exclude protections from various weather events and raise monthly premiums and deductibles.

New Zealand, Italy, Greece, Slovenia and Croatia all recorded their costliest weather-related insurance events on record.

According to media reports, insurance companies in New Zealand too may feel the heat of extreme disasters. In Europe too, the extreme weather events are likely to force insurers to increase the insurance prices

Underscoring the tremendous opportunity that exists by closing the protection gap, the report suggested use of climate analytics as catalysts that can provide forward-looking diagnostics for a range of extreme events. 

“The findings of the report highlight the need for organisations – from insurers to highly impacted sectors such as construction, agriculture and real estate — to utilize forward-looking diagnostics to help analyse climate trends and mitigate the risk, as well as protecting their own workforces,” said Andy Marcell, chief executive of risk capital and chief executive of reinsurance at Aon.

The insurance industry can play a pivotal role in unlocking and speeding up the flow of capital into green investments and volatility management through innovative risk transfer programmes, the report suggested.