Understanding the impact of future natural disasters

The non-physical effects on people and businesses in affected regions are also important to understand as the physical, says Michal Lörinc

Life

Michal Lörinc, Aon

In association with Aon

Over the past decade, we have seen climate change enable more frequent and extreme weather events. News headlines are filled with reports of tropical cyclones, severe convective storms, flooding, wildfire, drought and extreme heat, winter weather and more around the world. With each event, we see a larger impact across geographies and costs to people and businesses that represent more than just physical damage.  

While physical impacts have been the primary focus with these events, the non-physical effects on people and businesses in affected regions are also important to understand. We have seen socioeconomic shifts that have societal impacts on supply chains, health, population displacement and more. These conditions lead to increased business costs and change where and how people live.

And these events do not just affect those in the region. In our highly interconnected world, these disruptions have cascading effects globally. When a supply chain is disrupted from weather conditions, impacting the supporting infrastructure, businesses are limited in their ability to do their job and deliver a product to consumers.

A world without extreme weather is not possible, but understanding how to mitigate risks and limit losses and costs for businesses is. How can businesses take additional steps to both protect and grow?

The landscape

At Aon, our Global Catastrophe Recap Q3 2022 evaluates the impact of natural disaster events that occurred worldwide in the first nine months of the year. We found that global natural disaster events caused total economic losses estimated at minimally $227 billion, while global insured losses were at least $99 billion, including an initial view of Hurricane Ian. Some highlights from the report include:

• Anticipated insured losses from Hurricane Ian constitute a significant portion of the global insured losses, simultaneously driving tropical cyclone as the costliest peril for the insurance industry to date. The toll is expected to evolve over the coming months.
• Aggregated annual global insured losses in 2022 are now likely to exceed $100 billion for the third year in a row, and for the fifth time in the last six years.
• The United States accounted for the highest percentage of year-to-date economic losses ($114 billion), ahead of APAC ($56 billion) and EMEA ($42 billion).
• Europe experienced record-setting heatwaves, which resulted in more than 16,700 heat-related deaths and amplified severe drought conditions and wildfire risk across many territories.
• Glacier melt and prolific monsoonal rain resulted in historic flooding that devastated a large part of Pakistan. Devastating floods affected several African countries, notably Nigeria.

How we help organisations make better decisions to mitigate weather risk

Aon is in the business of better decisions. We’re dedicated to helping clients address unmet needs stemming from today’s rapidly changing, increasingly complex and interconnected environment. Our data-driven solutions provide information and insights to help organizations better use analytics to understand and mitigate the risks of severe weather events and assess their potential impact.  

For nearly a decade, Aon has been working to understand the impacts of climate catastrophes and how they affect businesses so we can help our clients navigate new forms of volatility. Our team created the Catastrophe Insight Database where we capture the historical loss data from natural disaster events globally, going back to the beginning of the 20th century. We also include qualitative and quantitative data on population trends, housing trends, GDP, wealth and other important sources. Using these inputs, our team conducts ongoing analysis to establish a baseline for what losses historically cost and what they cost now to give us visibility into how risks are evolving over time. With climate change of increasing importance, these insights are more vital by the day.

The 2021 Weather, Climate and Catastrophe Insight report further explored how severe weather events impact business and people, including:  

• Most of the world’s homes, businesses and infrastructure were built for a 20th century climate. As the effects of climate change accelerate, we need to prepare for the more intense events of tomorrow.
• The most vulnerable populations are typically in areas with the least means to prepare for or protect against the growing risks to their health. As increasingly vulnerable populations face food insecurity or a limited number of employment opportunities, they’ll leave their homes to find a new place to live.
• As large-scale disasters occur more frequently, the effects on the commercial sector will become more noticeable. These disasters are becoming more expensive and impactful and pose more complex risks for businesses.
• There needs to be a fundamental change in how risk management professionals prepare for the disasters of today and tomorrow. The path forward for organisations and governments must include sustainability and mitigation efforts to navigate and minimise risk as new forms of disaster-related volatility emerge.  

Understanding the impacts on businesses and people when an extreme weather event occurs is vital to planning for all organisations. While severe weather events will continue to occur in the future, more informed decision making will help clients make better decisions on the issues that matter most to them.

Michal Lörinc is head of catastrophe insight at Aon