Australian protection gap surges: Aon
Australia’s insurance protection gap jumped to 57% last year as a result of the diverse range of natural catastrophes that affected the country, Aon says.
The protection gap, reflecting the portion of economic losses not covered by insurance, rose from 30% in 2020 after the nation was hit by six catastrophe events including a bushfire, two floods, a severe thunderstorm, a tropical cyclone and an earthquake.
“The range of perils producing losses in 2021 was wider than 2020,” Aon Head of APAC Analytics, Reinsurance Solutions Peter Cheesman said.
“These perils such as bushfire, flood and cyclone have greater underinsurance associated with them when compared to perils such as hailstorms, which dominated the 2020 losses. Therefore, we saw the 2021 protection gap was greater when compared to the previous year.”
Aon’s Asia Pacific 2021 Weather, Climate and Catastrophe Insight report says the catastrophes led to aggregated insured losses of $2.16 billion, slightly above Australia’s long-term average of $1.84 billion, looking back to 1967. Annual natural catastrophe losses have averaged nearly $2.69 billion dating to 2010.
New Zealand experienced 10 catastrophe events and insured losses of $NZ322.5 million ($293.2 million) in the costliest year for weather perils on record since 1968.
Aon says local climate projections for Australia and New Zealand highlight an increased extreme rainfall intensity in future decades, with significant regional variability, but translating the projections into flooding impacts remains highly uncertain as other variables also need consideration.
“Clearly there remains both a protection gap and innovation gap when it comes to climate risk,” Mr Cheesman said. “If climate change does influence catastrophic events to increase in severity, then the way that we assess and ultimately prepare for these risks cannot depend on solely historical data.”
Mr Cheesman says it will be necessary to look to technology such as artificial intelligence and better predictive models that are constantly learning and evolving to map the volatility of a changing climate.
Asia Pacific economic losses dipped to $US78 billion ($110.1 billion) last year, 20% below the 2000-2020 average on an inflation-adjusted basis, partly reflecting a relatively quiet tropical cyclone season in the western Pacific Ocean.
The protection gap remained a challenging issue as insurance covered just 12% of the economic losses in the APAC region, the report says.
Globally, Aon says there were 401 notable disaster events last year, down from 416.
There were 50 US-billion-dollar economic loss events, the fourth-highest on record, while only 20 of the events met the billion-dollar insured loss threshold.
Wildfires increased in prominence, with the term “fire season” becoming outdated as the risk of dangerous events becomes prevalent through the calendar year, Aon says.
Last year was the world’s sixth-warmest on record with land and ocean temperatures 0.84 degrees Celsius above the 20th-century average.
