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Some 398 global natural disaster events caused an economic loss of $380 billion in 2023, up from a loss of $355 billion in 2022 and 22% higher than the 21st century average, according to insurance broker Aon (NYSE:AON) reported last week.
Biggest loss event in 2023 were the February earthquakes in Turkey and Syria, which resulted in an economic loss of $92.4 billion and an insured loss of $5.7 billion. From there, flooding in China in the May-September period caused an economic loss of $32.2 billion and an insured loss of $1.4 billion. The report finds that the majority of catastrophe losses were identified in the United States, although the majority of losses were uninsured in Europe, the Middle East and Africa (EMEA), Asia-Pacific (NASDAQ: APAC) and the Americas.
As such, global insurance losses remained high, ending the year above $100 billion for the fourth consecutive year, according to Aon’s (AON) annual Climate and Catastrophe Insight report. Insurers are required to set aside capital – typically a portion of revenue – to cover potential claims from policyholders.
With insurance covering just $118 billion (up from $151 billion in 2022), or 31% of total losses, the so-called protection gap increased to 69% from 58% the previous year, underscoring the urgent need to expand insurance coverage. Aon (AON) describes the protection gap as a benchmark of the insurance industry as a whole as it shows the level of financial vulnerability among communities.
In addition to climate change and increased exposure to disasters, inflation – which increases recovery costs – could be one factor behind the high insured losses.
“The report findings highlight the need for organizations – from insurers to highly impacted sectors such as construction, agriculture and real estate – to use forward-looking diagnostics to help analyze climate trends and mitigate risk, as well as protect its workforce. ,” said Andy Marcell, CEO of Risk Capital and CEO of Reinsurance at Aon.
Some U.S. insurers have raised insurance premiums in states increasingly vulnerable to natural disasters and climate change, including Florida and Louisiana. A handful of carriers have actually ceased operations in such areas.
We remember the fires that devastated the island of Maui in Hawaii in August. Property and casualty insurers are exposed to the state homeowners insurance market, such as Allstate (NYSE: ALL) and the American international group (NYSE:AIG), they would have to pay premiums to reinsurers to help cover losses above certain thresholds. It is a risk management tool that allows insurers to protect themselves from large financial losses in the event of a natural disaster.
Some insurers, meanwhile, have recently seen some moderation in the catastrophes they are covering. Travel companies (NYSE: TRV) Fourth-quarter results, for example, showed that catastrophe losses fell to $125 million before taxes, from $850 million in the third quarter and $459 million a year ago. Additionally, Allstate (ALL) said earlier this month that its catastrophe losses remained below the $150 million reporting threshold for the final month of 2023.
Other non-life insurers: Aflac (NYSE:AFL), Trisura Group (OTCPK:TRRSF), Chubb (NYSE:CB), Hartford Financial Services Group (NYSE:HIGH), Marsh McLennan Companies (NYSE:MMC), Cincinnati Financial (NASDAQ:CINF) and Progressive (NYSE:PGR).