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Global natural disaster events in 2023 generated an economic loss of $380B, a 22% increase from the 21st-century average, as reported by insurance broker Aon (NYSE:AON). This marked a rise from the $355B loss recorded in 2022.
The largest loss event in 2023 was the Turkey and Syria earthquakes in February, resulting in an economic loss of $92.4B and an insured loss of $5.7B. Subsequently, floods in China during the May-September period drove a $32.2B economic loss and a $1.4B insured loss. Despite the identification of most disaster losses occurring in the U.S., a majority of losses remained uninsured in the Europe, Middle East, and Africa (EMEA), Asia-Pacific (APAC), and Americas regions.
Global insurance losses remained elevated, exceeding $100B for the fourth consecutive year and closing out the year 31% above the 21st-century average, according to Aon’s annual Climate and Catastrophe Insight report. Insurers were required to set aside capital to cover potential policyholder claims, underscoring the urgency to expand insurance coverage.
With insurance covering only $118B, or 31% of the total losses, the “protection gap” widened to 69%, up from 58% in the previous year. This emphasized the pressing need to enhance insurance coverage, signaling the prevalent financial vulnerability across communities, as described by Aon.
Aon also highlighted that climate change, increases in disaster exposure, and inflation, which drives up recovery costs, could be the drivers behind the elevated insured losses.
Andy Marcell, CEO of Risk Capital and CEO of Reinsurance at Aon, emphasized the significance of utilizing forward-looking diagnostics to analyze climate trends and mitigate risks for organizations, from insurers to highly impacted sectors such as construction, agriculture, and real estate, to protect their workforces.
Several U.S. insurers have responded to the mounting risks in states increasingly vulnerable to natural disasters and climate change, including Florida and Louisiana, by raising insurance premiums, with some ceasing operations in these areas. Reinforcing the risk-management tool for insurers, the wildfires that swept Hawaii’s Maui island in August prompted property and casualty insurers, such as Allstate (NYSE:ALL) and American International Group (NYSE:AIG), to pay premiums to reinsurers to cover losses above certain thresholds.
However, some insurers observed moderation in the catastrophes they were covering. For instance, Traveler Companies’ Q4 results indicated a drop in catastrophe losses to $125M pretax from $850M in Q3 and $459M a year ago. Similarly, Allstate reported that its catastrophe losses remained below the $150M reporting threshold for the last month of 2023.
Other property and casualty insurers affected by the challenging landscape include Aflac (NYSE:AFL), Trisura Group (OTCPK:TRRSF), Chubb (NYSE:CB), Hartford Financial Services Group (NYSE:HIG), Marsh McLennan Companies (NYSE:MMC), Cincinnati Financial (NASDAQ:CINF), and Progressive (NYSE:PGR).