AIR Worldwide’s 2017 Global Exceedance Probability (EP) report estimates that the 1% aggregate exceedance probability insured loss (or the 100-year return period loss) from catastrophes worldwide is nearly $250 billion, and the global insured average annual loss (AAL) is at about $80 billion.
Hurricane Harvey flooding in Houston – Photo from ABC News
Average annual insured losses from the aggregate insured EP curve have increased since 2012, AIR said the rise reflects “the continued development of properties in at-risk areas as well as the growth in coverage of AIR’s modelled countries and perils; thus the modelled risk profile changes every year to reflect the latest exposures and the increased coverage.”
As one of the heaviest catastrophe years on record, 2017 was marked by a series of above-average natural catastrophes, from severe thunderstorms to record-breaking hurricanes, earthquakes in Mexico and wildfires in California.
Global insurance and reinsurance industry losses make up about 25% of global economic losses on average, when trended to 2015 dollars, according to AIR.
However, the portion of economic losses insured varies significantly by peril and region; “In North America, for example, about 40% of the economic loss from natural disasters is insured, while in Asia and Latin America, insured losses account for only about 9% and 14% of economic losses, respectively, reflecting the very low insurance penetration in these regions.”
The 2017 report bases its global loss metrics on perils and regions currently modelled by AIR, including new models and updates released during 2017, as well as databases of property values for more than 100 countries.
The emerging market of Asia has remained the region with the largest proportion of uninsured risk due to relatively low insurance penetration and, in some cases, nascent insurance markets.
However, AIR said a substantial insurance gap exists in the most developed markets, as seen in the United States and perils such as flood and earthquake.
Examination of economic and insured losses reveals a wide global protection gap with sizable losses for societies after catastrophes, highlighting the need for increased efforts towards risk mitigation, public risk financing, and emergency management to enhance global resilience.
AIR advised firms with global exposures to “prepare for the possibility that future catastrophes will produce losses exceeding any historical amounts,” adding that understanding, and owning this risk requires knowing both the likelihood of high-loss years and the diversity of events that could produce such losses.
