Global Average Annual Insured Losses from Extreme Events in Excess of $100 Billion, New Report Finds
October 25 2021 - 6:02AM
Extreme event modeling firm AIR Worldwide (AIR) today released its
2021 Global Modeled Catastrophe Losses report, detailing key global
financial loss metrics based on AIR’s latest suite of models that
reflect the near-present climate risk. AIR estimates that on an
annual average basis, catastrophes around the world are expected to
cause about $106 billion in insured losses. AIR estimates that the
five percent aggregate exceedance probability (EP) insured loss (or
the 20-year return period loss) is approximately $203 billion, and
the one percent aggregate exceedance probability insured loss (or
the 100-year return period loss) is about $320 billion. AIR
Worldwide is a Verisk (Nasdaq:VRSK) business.
“While there has been justifiable concern about extreme event
losses over the last few years, outside of 2017, actual global
insured losses have been below the modeled long-term average,” said
Bill Churney, president of AIR Worldwide. “Our report shows that
the global insurance industry should currently expect a long-run
annual average loss of $106 billion. This notably exceeds the
actual average loss of the past decade of approximately $75 billion
and is a stark reminder that we have been fortunate to not have had
a major tropical cyclone or earthquake event in a highly populated
region. However, such events can and will occur under the climatic
conditions of today and society must continue to focus on ensuring
resilience to the risks of today while also looking forward to how
risk may change in the decades ahead.”
In this report, AIR has always provided aggregate losses at the
100- and 250-year return period points from the full distribution
of potential losses—and it continues to be important to discuss
loss metrics in the tail of the distribution. However, given the
concerns about the scale of recent catastrophe losses and the
ability of the current suite of near-present climate models to
reflect extreme loss potential, AIR is also reporting an additional
point on the EP curve representing the five percent EP (or 20-year
return period) because losses in excess of $200 billion are a very
real possibility; there’s greater than a 40% chance the insurance
industry will experience losses of greater than $200 billion in the
next decade before accounting for growth in property exposure or
climate change.
“AIR has been an industry leader in understanding the impact of
climate change on atmospheric perils for over a decade,” said Rob
Newbold, executive vice president, AIR Worldwide. “While it is
certainly important to prepare for the business impacts of climate
conditions that may exist in the long-term, our clients have
stressed to us the reality that most financial decisions are made
on a much shorter, under 10-year time horizon. We invest
significant resources to ensure our models continue to reflect the
impacts of our changing climate and provide a view of the 0 to
10-year near-present climate. As the risk continues to evolve, our
models will incorporate the latest research on this evolution and
our global modeled losses will be updated to reflect this changing
risk.”
The 2021 report also provides estimates of global economic
losses from catastrophes, which highlight the persistent insurance
protection gap that will limit a country’s ability to recover from
a major extreme event. Global economic losses include insured and
insurable losses, as well as losses from non-insurable sources,
which may include infrastructure and lost economic productivity.
Based on its research, AIR has determined that global economic
losses are about three times higher than global insured losses on
average, when trended to 2020 dollars. Compared to AIR’s modeled
global insured average annual loss (AAL) of $106 billion, this
would correspond to an economic AAL of more than $320 billion.
On a regional basis, the percentage of economic loss from
natural disasters that is insured varies considerably. In North
America, about 50% of the economic loss from natural disasters is
insured, while in Asia and Latin America, insured losses account
for only about 12% and 24% of economic losses, respectively,
reflecting the very low insurance penetration in these regions. The
portion of economic losses that is insured also varies
significantly by peril, with coverage for flood and earthquake
losses typically much lower than for risk from wind and fire.
For the first time, this year’s edition of AIR’s Global Modeled
Catastrophe Losses paper also includes a section on the
Intergovernmental Panel on Climate Change (IPCC) reports, which
suggests how the protection gap might evolve in a warmer climate.
AIR's report highlights the large and growing protection gap for
many of the perils highlighted by the IPCC report (AR6), including
coastal and inland flooding.
Churney concluded, “Businesses in all industries, as well as
governments, are recognizing the need in a post-COVID world to
demonstrate their resilience and sustainability to extreme events.
Understanding the potential for global financial losses under
current conditions is a requisite starting point and AIR’s models
have successfully helped the insurance industry do this for over
three decades. The global EP curves generated in this report give
companies the knowledge with which to benchmark and manage extreme
event risk in the near-present climate for more than 110 countries
worldwide, and we look forward to partnering with the industry to
provide the metrics and solutions that are most useful in also
managing long-term climate risk.”
The 2021 edition of AIR’s Global Modeled Catastrophe Losses
report bases its global loss metrics on AIR’s latest suite of
models, including new models and updates released during 2021, as
well as updated industry exposure databases (IEDs). The report
excludes losses from AIR’s pandemic, cyber, and casualty models.
The report includes AIR’s presentation of global EP metrics on both
an insured and insurable basis, where insurable loss metrics
include all exposures eligible for insurance coverage assuming
standard limits and deductibles, regardless of whether they are
actually insured.
Download the 2021 Global Modeled Catastrophe Losses report here:
https://airww.co/3vksGbm
About AIR WorldwideAIR Worldwide (AIR) provides
risk modeling solutions that make individuals, businesses, and
society more resilient to extreme events. In 1987, AIR Worldwide
founded the catastrophe modeling industry and today models the risk
from natural catastrophes, supply chain disruptions, terrorism,
pandemics, casualty catastrophes, and cyber incidents. Insurance,
reinsurance, financial, corporate, and government clients rely on
AIR’s advanced science, software, and consulting services for
catastrophe risk management, insurance-linked securities, longevity
modeling, site-specific engineering analyses, and agricultural risk
management. AIR Worldwide, a Verisk (Nasdaq:VRSK) business, is
headquartered in Boston, with additional offices in North America,
Europe, and Asia. For more information, please
visit www.air-worldwide.com. For more information about
Verisk, a leading data analytics provider serving customers in
insurance, energy and specialized markets, and financial services,
please visit www.verisk.com.
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Kevin Long
AIR Worldwide
617-267-6645
klong@air-worldwide.com
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