By Rachel Koning Beals
Led by the deadly and costly Hurricane Ida and massive flooding in Europe, the world racked up $329 billion in economic losses linked to severe weather last year, and only 38% of that bill was covered by insurance.
Those results prompted consultants Aon /zigman2/quotes/203448336/composite AON +1.44% to warn in a report Tuesday that the mounting cost from climate change-fueled disasters is only in the early stages unless more complete insurance assessment and risk-pricing catches up. That could cost businesses and their customers more, make homeownership less accessible, and change how investors view stocks /zigman2/quotes/210599714/realtime SPX +1.86% in those companies seen most vulnerable.
Total economic losses tallied $343 billion, Aon said, $329 billion of which resulted from weather and climate-related events such as hurricanes, flooding, wildfires, tsunamis and drought. That left 2021 as the third costliest year on record after adjusting for inflation.
Natural disasters happen every year, but the collective scientific community has warned that warming global temperatures create more extreme weather, sometimes pushing hurricanes further inland or extending what is typically thought of as storm season for a particular region.
Wildfires in California and elsewhere increased in prominence as conditions have become more conducive for rapid fire spread. The term “fire season” is becoming officially outdated as the risk of dangerous wildfires is prevalent during the full calendar year, Aon officials said.
“There’s no question that the finger prints of climate change are already here today… more intense weather, impacting more things in harm’s way,” Steve Bowen, meteorologist and head of catastrophe insight at Aon, told MarketWatch. “When that happens, the insurance industry has to step back and recalibrate and determine where there need to adjustments in pricing.”
Modern life means both that it is more efficient to warn people when severe weather lurks, allowing for property protection and flight to safety, but also that ever greater development along vulnerable coasts and in population clusters puts more lives and structures in the path of destruction.
As the burning of oil /zigman2/quotes/209723049/delayed CL00 +0.31% and gas /zigman2/quotes/210189548/delayed NG00 -0.05% send the bulk of carbon and other emissions into the atmosphere, last year was the world’s sixth-warmest year on record. Land and ocean temperatures were 0.84°C (1.51°F) above the 20th century average, by some measures. The hottest temperature ever reliably measured on Earth was unofficially recorded in Death Valley, Calif., on July 9, 2021, at 54.4°C (130°F). And the decade that just ended was the hottest for a 10-year time span ever .
50 billion-dollar disasters
While 2021 economic losses were up from 2020, the number of notable disaster events slightly decreased, which means fewer events overall proved just as costly; 401 notable disaster events were recorded in 2021, down from 416 in 2020.
There were 50 instances of billion-dollar economic loss events, the fourth highest year on record. And only 20 of those had enough insurance on the property involved to cover the billion-dollar threshold.
Costs were even greater outside the U.S., as Germany, Belgium, Austria, Luxembourg and China recorded the costliest insurance industry events on record, Aon said. Floods were a major concern.
MunichRe, the German reinsurer, says its calculations show global losses caused by natural disasters came to $280 billion compared with $210 billion in 2020 and $166 billion in 2019.