Insurance Costs for Natural Disasters Surge to $102B in 2024

November 18, 2024

In the first nine months of 2024, global broking group Aon has reported that the insurance industry faced substantial losses from natural catastrophes, amounting to an estimated $102 billion. Compared to the previous year’s $88 billion, this represents a notable increase. With the impact of Hurricane Milton and other expected events, it is anticipated that the annual total will exceed the $125 billion recorded in 2023.

Comprehensive Analysis of Natural Disaster Events

Economic and Insured Losses

From January 1 to September 30, 2024, Aon’s Q3 Global Catastrophe Recap documented at least 280 notable natural disaster events worldwide, causing economic losses totaling $258 billion. This figure is 27% lower than the $351 billion recorded in the same period of 2023 and falls below the average of $277 billion. Despite the decrease in overall economic losses, insured losses have risen, with the current $102 billion exceeding both last year’s $88 billion and the average of $79 billion. This increase in insured losses has occurred despite a 60% protection gap, which is a historically low figure. The lower protection gap is attributed to the higher contribution of losses in the US, where insurance penetration is more extensive.

Key points include the fact that $59 billion, or 58% of insured losses, stemmed from severe convective storms (SCS), while $21 billion, or 21%, resulted from tropical cyclones. Aon highlights that most losses from SCS events are retained by insurers due to structural changes maintained by reinsurers. Specific to the third quarter, losses were significant due to three expensive hurricanes, SCS events in both the US and Canada, and flooding in Central Europe. Among these, Canada reported its costliest insurance loss year, with payouts expected to exceed $5.9 billion due to four separate events occurring within a single month.

Notable Storms and Their Impact

The year witnessed several noteworthy storms, with severe convective storms alone accounting for a significant portion of the losses. These storms, often occurring over large geographical areas, caused extensive damage to infrastructure and private property. Aon’s report notes that the structural changes in the reinsurance market meant that much of the financial burden was shouldered by primary insurers. The situation was compounded by an active hurricane season, with three major hurricanes making landfall and causing considerable destruction.

Elsewhere, Typhoon Yagi emerged as the deadliest and most costly event in Vietnam’s history. In addition to causing widespread infrastructure damage, Typhoon Yagi resulted in a significant number of casualties. Another critical aspect of these natural disasters was flooding in Central Europe, which disrupted economies and required large-scale relief efforts. The financial strain on the insurance industry from these events has been considerable, further magnified by the expectation of more impactful catastrophes before the year’s end.

Implications for the Insurance Industry

Industry Challenges and Financial Strain

Both Aon and Gallagher Re report that industry losses have already exceeded $100 billion before accounting for potential damages from Hurricane Milton. This indicates that 2024 will be another financially challenging year for insurers. The rising trend of insured losses, coupled with the persistent risk of natural catastrophes, underscores the need for improved risk management strategies within the industry. Aon’s head of catastrophe insight, Michal Lorinc, emphasized the complexity of natural catastrophe risk management, highlighting the significant role that the insurance industry plays in mitigating global losses.

In addition to managing the immediate impacts of natural disasters, the insurance industry faces the long-term challenge of adapting to increasingly frequent and intense weather events. This requires not only financial resilience but also the development of innovative solutions to anticipate and respond to emerging risks. The heightened costs and the evolving nature of natural catastrophes necessitate greater collaboration between insurers, reinsurers, and policymakers to bolster the industry’s capacity to manage these events effectively.

Future Outlook and Strategies

In the first nine months of 2024, Aon, a leading global broking group, has reported that the insurance sector endured significant losses due to natural disasters, totaling an estimated $102 billion. This figure marks a substantial increase when compared to the $88 billion in losses recorded for the same period in the previous year. The driving forces behind this surge in losses include a series of catastrophic events, notably Hurricane Milton, which has had a profound impact. Given the current trend and the occurrence of additional expected events, experts anticipate that the total annual losses for the insurance industry will surpass the $125 billion recorded in 2023. This upward trajectory in losses highlights the growing financial vulnerability of the insurance sector to natural disasters, necessitating enhanced risk management strategies. Aon’s report underscores the urgent need for the industry to adapt and innovate in response to the increasing frequency and severity of such events, focusing on resilience-building and efficient resource allocation to mitigate future risks.

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