Boston:
Catastrophe modeling firm AIR Worldwide (AIR) today released its “2018 Global Modeled Catastrophe Losses” report, detailing key loss metrics from AIR’s global industry exceedance probability (EP) curve.
Based on the report, AIR estimates that the 1 per cent aggregate exceedance probability insured loss (or the 100-year return period loss) from catastrophes worldwide is nearly USD 271 billion, and the global insured average annual loss is about USD 86 billion.
The 2018 report bases its global loss metrics on perils and regions currently modeled by AIR, including new models and updates released during 2018, as well as databases of property values for more than 100 countries.
“After a decade of below-average losses (apart from 2011 and 2017), 2018 will reinforce the fact that preparing for large losses before they occur is critical to continued solvency and resilience,” said Rob Newbold, executive vice president, AIR Worldwide.
The sizable difference between insured and economic losses—the protection gap— represents the cost of catastrophes to society, much of which is ultimately borne by governments.
Newbold concluded, “For the insurance industry, the protection gap can spur innovation in product development. In the public sector, governments are recognizing the importance of moving from reactive to proactive risk management, especially in countries where the risk is well known and a risk transfer system is not well established. Understanding the protection gap can help governments assess the risks to their citizens and critical infrastructure, and develop risk-informed emergency management, hazard mitigation, and public risk financing strategies to enhance global resilience and reduce the ultimate costs.”
In fact, both 2017 and 2018 offer powerful reminders that the insurance industry and other stakeholders must never be complacent. The year opened with European insurers having to deal with two winter storms in January, only weeks apart, each causing more than EUR 1 billion in insured losses. For the second time in the last two years, a hurricane dumped record precipitation in the U.S.
This year’s natural catastrophes were hardly limited to the United States and Europe; Asian countries certainly saw their fair share. Japan stands out, however, for the relentless onslaught of natural catastrophes and the country’s resilience to them, both from an insurer and insured perspective.
After a decade of below-average losses (apart from the aforementioned 2011 and 2017), 2018 will surely reinforce not just to newcomers to the industry, but even to those who have spent their careers assessing and managing catastrophe risk, the fact that preparing for large losses before they occur is critical to continued solvency and resilience
On a regional basis, the percentage of economic loss from natural disasters that is insured varies considerably . In North America, for example, about 40 per cent of the economic loss from natural disasters is insured, while in Asia and Latin America, insured losses account for only about 9 per cent and 14 per cent 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.
The global aggregate average annual loss (AAL) and exceedance probability loss metrics for 2018 include results from three new models introduced this year (European severe thunderstorm, and Southeast European earthquake and flood), and reflect changes in risk as a result of updated models (European extratropical cyclone and U.S. Wildfire); they also include updates to AIR’s industry exposure databases for Europe, and the U.S.