On Aon Podcast: Insights from Aon’s latest Climate and Catastrophe Insight Report

February 22, 2024 14 mins

On Aon Podcast: Insights from Aon’s latest Climate and Catastrophe Insight Report

Episode 69: Michal Lörinc shares insights on 2023’s natural catastrophes and the strategies needed to support those impacted.

Key Takeaways

In this episode, Aon experts share recommendations for resilience tactics in response to catastrophic weather trends.
Aon’s experts share the definition and explanation of the increasing protection gap.
Episode 69 identifies the key findings of Aon’s 2024 Climate and Catastrophe Insight.

Intro:
Hi everyone, and welcome to the award-winning “On Aon” podcast, where we dive into some of the most pressing topics that businesses and organizations around the world are facing. Today we hear from Michal Lörinc on weather and natural catastrophes. Now, please welcome this episode’s host, Alexandra Lewis.

Alex Lewis:
Hello. My name's Alex Lewis, and I'm chief marketing officer of Reinsurance at Aon. In today's On Aon episode, we are talking about weather, and natural catastrophes. Every year, our team of analysts and weather experts at Aon produces the Climate and Catastrophe Report, a close look at the previous year's weather and natural disaster events. The report looks at both the financial and human impact, and the trends that can help insurers and communities better help those impacted. With me today to discuss is Michal Lörinc of Catastrophe Insight at Aon. Thanks for being here today, Michal. I've obviously known you for many years, but if you were to meet someone on the street tomorrow, and had to explain to them in a nutshell what was the most important elements around this year's report, what would they be?

Michal Lörinc:
So, 2023 was a very eventful year. There were many remarkable disasters around the world. So, it's pretty difficult to actually pick just a few takeaways. However, if I was to summarize the main headlines, the most damaging event of the year was the Turkey and Syria earthquake sequence, which happened in February. So, this resulted in economic losses of more than $90 billion if you're talking about physical damage. In terms of insurance and reinsurance sector, the most damaging peril was actually SCS, severe convective storms. So, this includes hail, tornadoes, straight light winds, et cetera. And it actually resulted in more than 60 percent of all global insured losses, more than all the other perils combined. And finally, we are also focusing on climate, and some implications of the changing climate on natural disasters.

Probably the most emblematic statistic of the last year was that 2023 was the hottest year on record. So many regions of the world saw extreme temperatures. In fact, 24 countries and territories recorded their all-time high temperatures, and many regions of the globe also experienced severe heat waves, including Europe, Southern United States, Southeast Asia, and this resulted in thousands and thousands of fatalities, sadly.

Alex Lewis:
So, if we start at a high level, how much damage was actually caused last year by natural disasters, and how does this compare with previous years?

Michal Lörinc:
So last year was quite remarkable, because many noteworthy events occurred in basically all of the continents. So, in terms of the total damage from natural disasters, it was something above $370 billion. This means that the total economic losses were roughly 20 percent above average. That said, the biggest disaster was the earthquake sequence in Turkey and Syria, if you remember that in February. So that was a big deal not only for the country but for the whole region. So, if we take that out and only focus on weather and climate related disasters, it was close to average actually, only a few percent above average.

And in terms of what insurers had to cover last year, 2023, we're talking about insured losses approaching $120 billion. This means that it was also above average. The biggest takeaway from last year in terms of what perils or what natural disasters were the most damaging, was definitely the severe convective storm. The summer storms, which includes hail, for example, tornadoes, straight line winds. So, this was the most damaging peril across the globe. It was actually responsible for more than, or I think approximately 60 percent of all insured losses globally, more than all the other perils combined, and it was largely driven by the United States. There were also remarkable events in Europe, in Italy in particular, for example, but U.S. losses were the largest driver. And yeah. I talked about the financial implications of disasters, but we can't forget about the human impact.

So, considering human fatalities, 2023 was actually the deadliest since 2010, when we've seen the deadly earthquake in Haiti. 2023 death toll was again driven by earthquakes, 13 years ago, and that was mainly because of the event that I already mentioned, the Turkey and Syria earthquakes that killed almost 60,000 people. There were also other significant earthquakes like the Morocco earthquake, which killed 3,000 people. But we can't forget a phenomenon that's becoming more frequent or more significant in terms of death toll, and that is heat waves. So, this is a peril that does not necessarily result in material losses but can result in a relatively high human toll. So yes, Alex, these are the high-level statistics that I wanted to mention.

Alex Lewis:
So, Michal, you mentioned the sad number of fatalities and the fact that there's still very low take-up of insurance in many countries and territories around the world. And this has really been creating a protection gap as we often refer to it. But can you explain to our listeners what that actually means in reality, and why is that protection gap higher this year than last?

Michal Lörinc:
So, the protection gap is simply the difference between total economic losses, and what is covered by insurance. So, I already mentioned some high-level figures of economic and insured losses. So, if we compare that, we can say that the protection gap was around 70 percent. This means that 70 percent of total damage from natural disasters was not covered by public or private insurers. And there is a bit of a long-time trend in this statistic. So, the protection gap has been decreasing over time, but there is a variability year to year. And if you remember, last year we talked about the losses in 2022, and we said that the protection gap in 2022 was the lowest on record. And there were several reasons for that, because for example, the big disasters in 2022 happened in well-protected regions were like United States, or Europe, for example, whereas the regions with the lower pay cap had under average economic losses.

So, this basically resulted in a relatively low protection gap. But in 2023, we've seen again a protection gap of roughly 70 percent, which was close to average actually since 2000, and our regional differences and differences related to natural perils. The biggest disaster of the year, as we mentioned, was the Turkey and Syria earthquake, and only around $5.5 billion insured losses came from that event. So, you can see that there is a huge difference between the total, and what's covered by insurers.

Alex Lewis:
What do you think are some of the ways that we can bridge that protection gap?

Michal Lörinc:
We could definitely start with identifying where the protection gap is still an issue, which also translates to the next stage, to identify opportunities where insurers and the insurance sector can still provide the means for the society to basically enhance their resilience to disasters, because insurance is definitely part of it. And in the report, we also show various statistics related to this. So, we go to country level and show, for example, which countries have the most uninsured loss in 2023, and also on average.

Alex Lewis:
And, of course, we also have a really interesting article in the report all around opportunities for insurers, particularly around our research on transformative trends, and how climate has to be seen as an opportunity to, as you say, bring around more resilience for communities going forward. So, I think that there's going to be a huge amount of potential in the year ahead for our industry, but it's obviously not just down to insurance and risk mitigation. Adaptation is also really important going forward. And as we, as society, become more resilient, and bring in better risk management techniques, why do you think losses are still increasing?

Michal Lörinc:
Right. That's a complex issue. Obviously, losses are increasing quite dramatically in monetary terms when you look at the historical trends, and this is mainly because of the exposure growth. So, there's basically more stuff that can be hit by disasters. So other than exposure growth, and climate influence, we also need to think about all the other issues, for example, how we adapt to the disasters of today, and also disasters of tomorrow, because we expect that the hazard itself will change. And many of the disasters in 2023 showed that many countries or communities are not prepared for the disasters of today, because there were issues like disaster preparedness, warning systems, forecasting, infrastructure maintenance. All these issues were brought up and highlighted by many remarkable events. But if we circle back, the main reason why losses are increasing over time is the growth of exposure, and population growth in vulnerable areas.

Alex Lewis:
And you mentioned some of those tactics that we can do as a society to improve going forward, such as building more resilient infrastructure. But what are some of those other top recommendations? So, we can really respond to the trends that you've listed within the report.

Michal Lörinc:
Right. So, for example, if we start with the largest event, which was the earthquake sequence, the government and people in these vulnerable areas need to think about the possible disaster impacts, and for example, emphasize the importance of building codes. This issue is particularly relevant for the earthquake peril. It was highlighted in several other events in 2023.

Alex Lewis:
So, Michal, you've mentioned earthquakes and floods, which are seen as more traditional perils. But of course, with the impacts of climate, we are seeing what can be classed as chronic perils ranging from droughts, freeze, heat waves, et cetera. And you also mentioned earlier on in the chat about the number of people who have sadly lost their lives through heat waves. So, what are some of the more practical measures that companies and governments can take in response to that peril?

Michal Lörinc:
Right. So, for example, yes, heat waves are becoming more discussed, because there's a lot of things we don't know about climate change, and how it will affect behavior of many different perils. But what we know with high certainty is that heat waves are going to get worse, and more frequent. And we've seen many of such events in recent years in Europe, but also in other continents. And these events resulted in a relatively high excess mortality, or people that died as a result of those heat waves. So, there's many different things that governments and private sector can do, because for example, it usually affects urban areas quite a lot. So, for example, you need to start thinking about how to invest in some green spaces, or some sustainable construction, or the workforce resilience, because these are perils that are not necessarily causing material damage, as I said, but it affects human health primarily. And this can be a big issue for employers as well.

Now, these are the ways people can adapt to those heat waves. But then it's also a question of mitigation, which is related to the efforts to limit carbon dioxide and other greenhouse gas emissions in the atmosphere.

Alex Lewis:
Thank you for those recommendations and encouraging that we can all play our part in helping to adapt and mitigate some of those risks.

So, Michal, thank you so much for joining us today, and keeping us better informed around some of those incredibly important trends that are happening in the climate and catastrophe space. That's our show for today. Thank you everyone for listening in. And watch out, because over the next few months, we'll have additional episodes looking at wellbeing, ESG, innovation, and much more. Until next time.

Outro:
Thanks for tuning in to the latest episode of “On Aon” with our episode host, Alexandra Lewis and today’s expert, Michal Lörinc for a discussion on weather and natural catastrophes. If you enjoyed this episode, don’t forget to subscribe wherever you get your podcasts, and stay tuned for our next conversation featuring industry experts bringing you the latest on topics including climate risk, workforce wellbeing, ESG trends, and much more. Be sure to check out our show notes and visit our website at Aon dot com to learn more about Aon.

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