The impacts of climate change were felt on a global scale throughout 2021, with detrimental events such as hurricanes, tsunamis, tornadoes, and floods increasing in severity.
In Aon’s 2021 Weather, Climate and Catastrophe Insight, it was reported that there were 401 notable disaster events which resulted in US$343 billion in economic losses, 27% above the 21st century average.
When it came to insured losses, the total amounted to US$130 billion, 76% above the 21st century average, with 71% of global insured losses were recorded in the United States. Hurricane Ida alone caused US$36 billion in insured losses, making it the fourth costliest hurricane on record for the industry.
The report highlighted that there was a 62% global protection gap and Steve Bowen (pictured), managing director and head of catastrophe insight at Aon, spoke to Insurance Business about the growing importance for global leaders to work together to bridge this gap.
“We’ve made good progress. There have been many proposals by various governmental and private sector bodies last year that have made commitments to address not only carbon emissions, but around planning and preparation,” he explained.
Regulatory bodies are mandating more climate disclosure from companies and placing priority on ESG initiatives, but, regardless of mandates, Bowen noted that companies are taking it upon themselves to make meaningful steps forward.
“I’ve never been more optimistic than I am today around things improving and getting a better handle on climate as a topic,” he said. “I’m also a realist and know there is still a very long way to go, but each step forward is something that should be celebrated.”
Though optimism is in the air, the supply chain has still led to significant disruption in the era of larger and more impactful disasters.
“It continues to have a chain reaction in manufacturing capabilities around the world, leading to challenges for getting products on the shelf for end consumers,” Bowen mentioned. “The interconnectedness of our global economy is becoming much more prevalent.”
The effects of supply chain backlogs are being felt not only in locations where physical damage has occurred, but they’re also cascading to secondary and tertiary effects on a monetary scale.
“Taking more of this into account and realizing climate change is not just around individual hazards, it is really going to help change the mindset of how to plan for the longer and short-term impacts that can be felt,” Bowen continued.
In 2020 there were shortages on material such as lumber that led to massive spikes in pricing, which continued into 2021, but there were also continued labour shortages that led to additional costs.
As a result of supply chain and labour shortages, insured losses naturally inflated but global markets are now on the road to recovery.
“We’re certainly becoming more prepared and diversifying where some of these production facilities are being developed,” Bowen said. “As long as we’re recognizing where the highest risk is and make some best practice decisions to limit potential effects of the supply chain, it’s progress.”
Bowen explained that the world is still dealing with a sizable protection gap as a large portion of the economic damage from catastrophic events are simply not insured.
“That just continues to highlight that we need to come up with new insurance solutions to ensure people have the ability to tap into money to get their lives back on track,” he said.
“The industry has never been more prepared to really start making meaningful change,” said Bowen. “There’s a lot of momentum that will continue to bring us close to the end goals we all hope to achieve.”