Global Modeled Catastrophe Losses: What Should We Expect?
Every year since 2012, AIR has published a report of global modeled losses based on our current suite of extreme event models. The report gives a view of extreme event loss potential and identifies markets around the world where increased insurance penetration could help close the insurance protection gap.
In the 2021 edition of “Global Modeled Catastrophe Losses,” AIR estimates that on a long-term annual average basis, catastrophes around the world are expected to cost about USD 106 billion in insured losses, which represents less than half of the total insurable losses. While the historical loss experience over the past 10 years is lower than this long-term average, the distribution of losses from the AIR models has long shown that >USD 100B loss years such as 2011 and 2017 are not unexpected, and that even higher losses are possible under current and near-term climate conditions. In fact, AIR estimates that there’s a greater than 40% chance the insurance industry will experience losses of greater than USD 200 billion in the next decade before accounting for growth in property exposure or climate change.
Read AIR’s white paper to discover other metrics, how the losses break down by region and peril, how the size of the protection gap varies throughout the world, how climate change will affect these gaps, and much more.
The Global Protection Gap
The protection gap, or the difference between economic and insured losses, results in an enormous cost to society when disasters occur. This cost is ultimately borne by both governments and individuals, and continually threatens the resilience and economic well-being of developing nations. Even in the United States, where insurance penetration is typically high, flood and earthquake risk are severely underinsured.
Understanding and measuring the protection gap is one of the biggest challenges facing the insurance industry today. For regions and perils covered by catastrophe models, this protection gap represents not only potential business growth opportunities, but a responsibility to act.
How a Warming Climate Impacts the Protection Gap
AIR’s probabilistic atmospheric peril models, including our flood models, have been built and validated to represent the near-term climate on a 0- to 10-year time frame. The latest Intergovernmental Panel on Climate Change (IPCC) report, Climate Change 2021: The Physical Science Basis, highlights areas where the risk from natural perils is expected to increase over the next 10 to 50 years. Notable are the projections in many regions of increased precipitation and flooding, a peril that is rarely adequately insured anywhere across the globe and losses from which will have a significant impact on resilience.