Globally, the COVID-19 pandemic may not have affected insurers’ balance sheets in the same way that weather-related disasters did in 2020, but the industry is now much more aware of the impact of multiple catastrophe scenarios unfolding at once, an Aon report suggests.
As a result, Aon’s CEO Greg Case predicts that private insurers will be working more closely with the public sector in the future to manage catastrophe losses in an increasingly interconnected world.
“Perhaps the biggest takeaway from 2020 was the recognition of how concurrent events can have major global implications,” Aon says in its 2020 annual report, Weather, Climate & Catastrophe Insight. “These ‘compounded’ or ‘connected extremes’ will provide critical learning opportunities for better planning as the world becomes increasingly complex and faces growing or emerging risks.
“2020 also highlighted topics such as the protection gap to address the underserved; increasingly vulnerable populations; the need for additional investment around risk mitigation strategies to navigate new forms of volatility; and the growing influence from climate change on daily life.”
Aon’s report estimates that direct economic losses and damage from natural disasters in 2020 amounted to US$268 billion, of which US$97 billion was insured (that’s 40% above the 21st Century average for insured damage). The global protection gap (the gap between total economic damage caused by catastrophes and the proportion of losses that are insured) last year stood at 64%.
Year 2020 wound up being the costliest on record for global severe convective storms (US$42 billion in damage), led by the historic U.S. derecho storm that saw wind gusts of up to 220 km/h hit Cedar Rapids, Iowa.
Overall, 28 individual, insured catastrophe loss events exceeded $1-billion globally in 2020 – the highest on record. In Canada, the country’s most expensive insured loss due to a hailstorm resulted in $1.2 billion in insured damage.
In many instances, the pandemic complicated the insurers’ response to these catastrophes, as indicated in the Aon report. “COVID-19’s coinciding impact to natural disaster response from a humanitarian perspective was enormous,” the report states.
“The insurance industry was faced with enormous challenges in trying to accelerate the claims process while balancing multiple large-scale disasters, pending litigation from COVID-19-related incidents, increased replacement costs due to a disrupted supply chain, and other complex scenarios.
“However, the re/insurance industry managed to weather the storm successfully, as continued strong capitalization allowed all disasters to be comfortably managed where cover was in place.” Last June, Aon reported that total global reinsurance capital stood at US$590 billion as of 2020 Q1.
Commenting on the report, Case suggested a need for private insurers to work more collaboratively with the public sector in the future to manage and coordinate the response to concurrent catastrophic events.
“The global response to the socio-economic 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,” Case said. “This report highlights the increasing likelihood of ‘connected extremes’ and reinforces that leading organizations of the future will be defined by their ability to manage the global implications of concurrent catastrophic events.
“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 emphasized 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.”
Feature image: Sukh Singh, 22, sweeps up broken glass from his car as cleanup begins in Calgary, Alta., Sunday, June 14, 2020, after a major hail storm damaged homes and flooded streets on Saturday.THE CANADIAN PRESS/Jeff McIntosh