Natural catastrophe losses expose protection gap

Over the last 12-months, global citizens have endured natural catastrophes that claimed over 74 000 lives and caused around USD250 billion in overall losses. Around 38% of these losses were ‘carried’ by the insurance sector, reigniting the age-old debate of whether the industry is doing enough to plug the cover gap. Turning to the staggering ‘loss of life’ experience, one is tempted to challenge insurance stakeholders to do more to advise and lobby governments on protecting their citizens from deadly earthquakes, floods and thunderstorms.

Bad, but nowhere near the worst ever

Global reinsurer, Munich Re, published its ‘Natural disasters in 2023’ factsheet in early January 2024. The report estimated overall losses due to natural disasters of USD250 billion over the 12-month period with around USD95 billion of that total ‘on cover’. The insured losses were lower than the five-year average of USD105 billion but above the 10-year average of USD90 billion. In its media release on 2023 losses, Munich Re labelled the earthquake in Syria | Turkey as the “most devastating humanitarian disaster” in 2023 and commented that thunderstorms in Europe and North America were “more destructive than ever”. The latter peril caused USD76 billion in overall economic losses of which USD58 billion was insured. 

“The year 2023 was once again characterised by extremely high insured losses from natural disasters despite the fact that there were no extreme individual losses,” said Thomas Blunck, Member of the Board of Management at Munich Re. He identified comprehensive data and in-depth knowledge of changes in risks as important factors in designing insurance and reinsurance solutions, before noting that the number of fatalities following last year’s devastating earthquakes were “a wake-up call to ensure better [physical] protections for people”. In this regard, one cannot help but compare the Syria | Turkey and Morocco earthquake losses to the 2010-11 Christchurch, New Zealand event. The latter caused an estimated USD40 billion in economic losses but claimed 185 lives.

The February 2023 Syria | Turkey earthquake stands out as the biggest insured loss event for the year, costing the industry around USD5.5 billion. All of the remaining ‘top five’ insured loss events occurred in north America, including a March-April 2023 tornado and winter storm (US); March 2023 severe storm (US); Hurricane Otis, which tore through parts of Mexico in October; and another series of tornadoes and severe storms that affected parts of the US in June. The four events contributed to insureds losses of between USD4.3 billion and USD3.9 billion each. No surprise that north America dominated the regional loss tables with USD67 billion in insured losses, followed by Europe with USD19 billion. Africa’s total insured losses came in under USD1 billion. 

Tough year for earthquake-related fatalities

The Syria | Turkey earthquake event topped the 2023 fatalities list with over 58 000 deaths. “After years of relative calm, a series of devastating earthquakes led to humanitarian disasters,” writes Munich Re. “In total, around 63 000 people lost their lives as a result of [this type of] geophysical hazard in 2023, more than at any time since 2010”. Earthquakes in Morocco, in September, and Afghanistan, in October, caused 3 000 and 1 500 deaths respectively. Significant natural disaster-related fatalities were also recorded in Libya, with 4 300 fatalities due to flash flooding in the wake of tropical storm Daniel, and 1 400 deaths across Madagascar, Malawi, Mozambique and Zimbabwe in the wake of Cyclone Freddy. 

The ongoing global temperature rise on the back of climate change was singled out as a major driver of 2023 overall natural catastrophe losses. According to Munich Re, there is a “large body of scientific research [that] indicates that climate change [creates conditions favourable for] severe weather with heavy hailstorms”. The reinsurer referenced global weather statistics that show average temperatures to November 2023 were roughly 1.3°C above those recorded in pre-industrial times, in the late 18^th Century. They conceded that the El Niño phenomenon may have played a role in higher temperatures, but favoured the climate change narrative as the likely main contributor. 

For those who do not follow climate news, the reinsurer referenced countless seasonal temperature records that were smashed over the last year. For example, Spring temperatures of over 40°C were recorded in southwest Europe (in April) and in Argentina (in September); temperatures of more than 50°C were recorded in northwest China; and night-time temperatures in excess of 32°C were common in the US state of Arizona in July! Things are heating up in South Africa too, with an article on Daily Maverick reporting on a 10-day heatwave that saw temperatures at record-breaking highs at many stations. Parts of the Northern Cape, Limpopo, Mpumalanga, KwaZulu-Natal and Free State all recorded temperatures of 40°C and higher in November 2023. 

Island nations suffering significant CAT losses

Commenting on the Asia-Pacific and Africa region, Munich Re noted that the overall natural disaster losses were USD2 billion ‘softer’ for 2023 compared to the USD66 billion in the prior year. Insured losses declined too, from around USD11 billion to USD8 billion. Insured losses in the region were dominated by New Zealand, which experienced floods in and around Auckland and Cyclone Gabrielle. Both events occurred in February. Japan, a country highly exposed to natural hazards, was largely spared major damage in 2023. Alas, the island nation has since welcomed the New Year with a large earthquake that caused significant damage to infrastructure and claimed more than 60 lives. 

Munich Re spent some time commenting on natural catastrophe losses in north Africa due to tropical storm Daniel, which made landfall in Libya in September. “Dams in the city of Derna collapsed and more than 4 000 people lost their lives in the ensuing floods,” they wrote. “Also in September, around 3 000 people were killed in a 6.8-magnitude earthquake in Morocco, the strongest earthquake in that country for well over 100-years”. The Morocco quake caused USD7 billion in overall losses; but only USD300 million was insured. PS, the coverage ratio of just 4.2% is quite common in countries with low general insurance penetration. 

Countries in Sub-Saharan Africa (SSA) were worst-affected by Cyclone Freddy, which “made landfall on the island of Madagascar and then meandered back and forth between Madagascar and Mozambique” in February and Marc 2022. The event claimed around 1 400 lives but did not cause significant economic or insured losses. 

Some comment on the statistics

There are a number of global insurance and reinsurance brands that publish natural catastrophe loss reports annually, each with a slightly different skew. For example, Munich Re does not include drought or heatwave losses in its estimates, and decided to report the Syria | Turkey earthquake loss statistics under its Europe region. The reinsurer also noted that the cost of a major flooding event that occurred in Australia in mid-December 2023 had not been included in its review, as it was too early to estimate the losses. 

Disclaimers are quite common, with Munich Re noting that it “assumes no guarantees as to the accuracy of the data, which is collected as of specific dates and can change at any time”. As such, these reports should be treated as useful trend indicators that cannot substitute for the careful on-the-ground assessments of natural catastrophe risks that precede placing insurance covers. 

Writer’s thoughts:

The mega-losses listed in the global ‘Natural disasters in 2023’ report should not deflect from the dozens of extreme weather-related losses that countries like South Africa suffer each year. Are you concerned about the impact of South Africa’s 2023 insured loss experience on your 2024 insurance or reinsurance renewals? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.

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