Insurance industry can expect global average annual disaster claims of $ 106 billion: AIR

The global insurance industry can currently expect a long-term average annual loss of $ 106 billion and a more than 40% chance of sustaining an annual loss of over $ 200 billion over the course of the year. next decade, according to Boston-based modeling company AIR Worldwide.

AIR estimates that there is a 5% chance that the losses in the insurance industry will exceed $ 203 billion in any given year (with a payback period of 20 years), explained Vijay Padmanabhan, vice -President of AIR Worldwide in an interview with Insurance Journal to discuss AIR’s recent catastrophic loss report, titled Global Modeled Catastrophic Losses, October 2021.

“In the next 10 years, there is a 1% chance that losses will exceed $ 320 billion (with a return period of one hundred years) in any given year, while there is a 0.4% probability that losses will reach $ 397 billion (with a 250-year return), ”he explained.

The average annual loss (AAL) of 106 billion dollars “notably exceeds the real average [annual] loss of the last decade of about $ 75 billion and is a stark reminder that we were fortunate not to have had a tropical cyclone or major earthquake in a densely populated area, ”said Bill Churney, president AIR Worldwide, in a press release accompanying the publication of the report.

AIR calculates the 10-year average of insured losses at around $ 75 billion, but the highest losses in recent years are not model outliers because the models take into account the possibility of tail risk such as yield over 20, 100 and 250 years. periods, explained Kevin Long, senior director of public relations and social media for AIR, in the interview. (See table below).

“Our models show that the actual losses based on the annual average losses could be much higher,” Long said.

This year, the industry has suffered losses of more than $ 70 billion since the start of the year, which is lower than AIR’s AAL of $ 106 billion, Padmanabhan said.

Insured properties High risk areas

In its report, AIR said that the average annual insured losses and metrics for all regions and risks modeled by AIR have generally increased since the publication of its first white paper in 2012.

” It’s planned ; the increase reflects both the increase in the number and value of insured properties in high-risk areas and the inclusion of regions and perils for which new models are now available, ”the report said.

Long explained that the numbers will also continue to rise as new models and hazards are added to AIR’s portfolio.

As an example, Padmanabhan said recent model updates have incorporated more rainfall-induced flooding, which is exacerbated by climate change. “There is more precipitation associated with hurricanes, which we have built into our models. “

“The pace of climate change will change over time and will likely result in greater losses…” he noted.

See AIR website portal on climate change for more information on how the frequency and intensity of atmospheric hazards such as tropical cyclones, extratropical cyclones, severe storms, forest fires, inland flooding and coastal flooding could change as the climate is warming up.

Insurance protection gap

In its latest modeling report, AIR determined that global economic losses (which included insured and uninsured losses as well as losses from uninsurable sources such as infrastructure and lost economic productivity) are on average about three times higher than the global insured losses, when tilted towards 2020 dollars. As a result, the modeled global RIA insured AAL of $ 106 billion would correspond to an economic AAL of over $ 320 billion.

The so-called insurance protection gap between insured and uninsured losses “limits a country’s ability to recover from a major extreme event,” according to the AIR report.

On a regional basis, the percentage of economic losses due to natural disasters that is insured varies widely, AIR added.

The AIR report highlighted that in North America about 50% of economic losses due to natural disasters are insured, while in Asia and Latin America insured losses are only about 12% and 24% respectively. % of economic losses, reflecting the very low penetration of insurance in these regions.

The share of economic loss that is insured also varies widely by risk, with coverage for flood and earthquake damage typically much lower than for wind and fire risks, AIR said. .

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