Protection gap jumps sharply in Australia following natural catastrophes in 2021

Australia’s insured economic loss more than AUD$2 billion in global weather catastrophe-related economic losses reported in the year. 

SYDNEY, 25 May 2022 - Aon plc (NYSE: AON), a leading global professional services firm, has released its Asia-Pacific 2021 Weather, Climate and Catastrophe Insight report, which evaluates the increasing frequency and severity of disruptive natural disasters and how their resulting economic losses are protected globally.

The report reveals that in Australia 2021 delivered six catastrophe events covering a bushfire, two floods, a severe thunderstorm, a tropical cyclone and an earthquake, for a total of AUD$2.16 billion in insured losses in 2021. This aggregated insurance loss across 2021 was slightly above the long-term average of AUD$1.84b (looking back to 1967).

However, it is concerning to note that last year, the protection gap - which is the portion of economic losses that are not covered by insurance - was 57 per cent, rising from around 30 per cent in 2020. In Australia alone, natural catastrophes have averaged nearly AUD$2.69 billion in annual insured losses dating to 2010.

“The range of perils producing losses in 2021 was wider than 2020. These perils such as bushfire, flood and cyclone have greater underinsurance associated with them when compared to perils such as hailstorms, which dominated the 2020 losses. Therefore, we saw the 2021 protection gap was greater when compared to the previous year,” said Peter Cheesman, head of APAC Analytics, Reinsurance Solutions at Aon.

One of the more widespread and significant declared catastrophe events was the March 2021 floods. Local climate projections generally highlight an increased intensity of extreme rainfall in future decades, with significant regional variability. Translating these rainfall projections into flooding impacts remains highly uncertain as many other variables that control flood risk also need careful consideration.

“Clearly there remains both a protection gap and innovation gap when it comes to climate risk,” said Cheesman. “If climate change does influence catastrophic events to increase in severity, then the way that we assess and ultimately prepare for these risks cannot depend on solely historical data. We need to look to technology like artificial intelligence and better predictive models that are constantly learning and evolving to map the volatility of a changing climate. With scalable solutions, we can help organisations make better decisions that make them more resilient as they continue to more frequently face interconnected and increasingly volatile risks.”

Globally, other key findings from the report include:

  • 401 notable disaster events were recorded in 2021, down from 416 in 2020
  • There were 50 instances of U.S.-billion-dollar economic loss events, the fourth-highest year on record, with only 20 of the events reaching the billion-dollar insured threshold
  • Wildfires increased in prominence as conditions have become more conducive for rapid fire spread, with the term ”fire season” becoming officially outdated as the risk of dangerous wildfires is prevalent during the full calendar year
  • 2021 was the world’s sixth-warmest year on record with land and ocean temperatures at 0.84°C above the 20th-century average

“Many global communities are exposed to increasingly volatile weather conditions that are in part enhanced by the growing effects of climate change. This includes record-setting episodes of extreme temperatures, rainfall and flooding, droughts and wildfires, rapidly intensifying tropical cyclones and late season severe convective storms,” said Steve Bowen, meteorologist and head of Catastrophe Insight at Aon. “We can no longer build or plan to meet the climate of yesterday. With physical damage loss costs rising, this is also leading to lingering global disruptions to supply chains and various humanitarian and other asset-related services. 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.”

This data serves as the foundation for insights that can help business leaders quantify and qualify catastrophe-related risk and assess how their organisations can increase resilience amid an increasingly volatile climate. The Asia-Pacific 2021 Weather, Climate and Catastrophe Insight report is available here.

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