In contrast, the number of events recorded remains below average for the year-to-date (YTD) in 2021, but the financial loss from these natural disasters and severe weather outbreaks has been particularly costly, according to the broker.
The $107 billion global insured loss figure includes the effects of natural disasters on private insurance and reinsurance markets, as well as public insurance entities.
According to Aon, 2021 is already well ahead of the annual average, with the $107 billion figure 13 percent higher than the recent decadal average ($95 billion) and 26 percent higher than the decadal median ($86 billion).
Third-quarter events have dramatically increased insured payouts, with Aon now estimating that hurricane Ida will cost more than $30 billion, and European flooding will cost the industry $12 billion.
This is in addition to the $15 billion estimate for winter weather and storm Uri in the United States in February.
As of early Q4 2021, 15 individual billion-dollar insured natural disaster loss events had occurred this year.
According to Aon, nine of the fifteen incidents occurred in the United States, with the rest occurring in Europe (3), Asia (2), and the Americas (1).
A high-cost natural disaster event is caused by a number of factors, including location, intensity, event length (time), and construction type. All of these factors – and more – are important to consider when determining why some disasters are more expensive than others. The ongoing impact of climate change on specific weather and climate-related events has only exacerbated the behavior and unusual nature that individual occurrences continue to exhibit. This means that hurricanes are intensifying faster; extreme rain events are dropping more precipitation; wildfires are burning hotter and faster; droughts are becoming more pronounced and prolonged; and the Polar Vortex can affect latitudes that are not accustomed to prolonged cold periods.
Natural peril risk increased over time as a result of the previously mentioned weather, climate, and human factors (more people and stuff moving into highly vulnerable locations). On an aggregate and individual basis, this corresponded to more expensive events.
As a result, the broker believes that the frequency of "mega" events, or industry loss events worth $10 billion in nominal or inflation-adjusted terms, is increasing in the insurance industry.
But since 2017 there have been ten natural catastrophes that caused a $10 billion plus insurance industry loss, with three of these in 2021 and fifteen of the twenty-six events tracked having occurred since 2011, by Aon’s data.
In terms of smaller events, based on insured losses, there have been 24 that cost over $5 billion since 1989, but half of these occurred since 2011, Aon says.
Aon expects that we will now see “increased pressure by the re/insurance industry to handle the costlier trend” as risks related to natural perils grow more costly, for some of the reasons detailed in the quotes further up this piece.
“Whether this results in a more active movement into parametric-based insurance products, or more future looking investment strategies around a carbon tax or green bonds, the traditional way of viewing natural peril risks is quickly being forced to change,” the broker explains.
Adding that, “As concerns around litigation or liability risk grow as natural perils become more intense, this will only further advance the need to invest with a forward -thinking mindset as event behavior and resultant impact types seemingly evolve with each passing day.”
The data drives home the need for risk commensurate pricing in reinsurance and for the industry to look both at its recent history, as well as longer-term trends and to embrace forward-looking scientific views of climate and weather trends.