As the world watches another major natural catastrophe event unfolding, in major Category 4 hurricane Michael, it’s become clear that recent weeks have been very expensive and broker Aon says that September alone has resulted in “tens of billions” of economic losses around the globe.
However, the events in September also served to highlight the under-insurance issue and the so-called protection gaps, according to the insurance and reinsurance broker.
The United States suffered two storm impacts during September 2018, the less impactful Tropical Storm Gordon and the much more expensive Hurricane Florence, which made landfall in North Carolina as a Category 1 storm.
Florence killed an estimated 53 people directly or indirectly and is estimated to have resulted in total economic losses of well over $10 billion, but insured losses are only expected to reach the low-digit billions, given the low flood insurance penetration.
Typhoon Jebi struck Japan during the month, causing widespread wind and flood damage across numerous prefectures. With economic losses expected to reach well into the billions of dollars (USD), the cost will again likely far exceed the insurance and reinsurance market loss. In the case of Jebi, the General Insurance Association of Japan (GIAJ) disclosed around 486,000 insurance claims filed, leading to an expectation of a multi-billion-dollar industry loss, although falling far short of the economic cost it is assumed.
Even in the developed economies of the United States and Japan the protection gap is evident after natural catastrophe losses, reflecting the job that insurance and reinsurance interests have to do in encouraging protection buyers to get better coverage.
Super Typhoon Mangkhut devastated parts of the Philippines, Hong Kong, and China during September, killing at least 102 people, and damaging over 210,000 homes in the Philippines alone. Total combined economic damage and net loss business interruption is anticipated to reach into the billions of dollars (USD), Aon said, while a local insurance loss in China and Hong Kong will mean payouts approaching or exceeding US $1 billion.
The magnitude 7.5 earthquake and tsunami that struck Indonesia’s Sulawesi Island on September 28th, is now known to have killed more than 2,000 people, with many more missing. Here the economic cost is expected to exceed US $1 billion, but insured losses will be a tiny part of that.
Another earthquake that struck Japan in the Hokkaido region killed 41 people and injured 680 others. For this event the GIAJ revealed that 12,279 insurance claims had been filed, but again while the economic cost is likely more than a billion, the insurance and reinsurance impact will be much smaller.
Steve Bowen, Impact Forecasting Director and Meteorologist, commented, “September will be recorded as the costliest month so far of 2018, as global economic losses from natural catastrophes are expected to reach into the tens of billions of dollars. A series of significant catastrophes – including Hurricane Florence, Typhoon Jebi, Typhoon Mangkhut, and the Indonesian earthquake – were poised to cause tens of billions in economic damage.
“Each of these events were also noteworthy since the majority of losses are likely to be uninsured. This once again highlights that whether a country is considered mature or emerging, there continue to be gaps in insurance coverage on either a market-wide or individual peril basis. As natural peril risks increase, it becomes even more important to close those gaps to help people in the recovery process.”
Clearly some of these events have had an attritional impact on reinsurance aggregates and some collateralized reinsurance positions, particularly hurricane Florence and Typhoon Jebi. But the impact is not going to be particularly significant from September’s events, although we could see some ILS funds falling to a negative return if they allocate to particularly exposed reinsurance programs.
Other natural disaster and severe weather events during the month included:
- Significant flooding impacted many areas around the globe during the month. In Mexico, more than 300,000 homes were inundated by floodwaters in the hardest-hit state of Sinaloa. Other severe flooding events impacted parts of the United States, West Africa, China, India, North Korea, and, Vietnam.
- Outbreaks of severe weather led to bouts of tornado, straight-line wind, or hail damage in parts of the United States and Canada (including an EF3 tornado which touched down in Ontario province). Total combined economic losses were expected to reach into the hundreds of millions (USD).
- A series of windstorms marked an early start to European Windstorm season. Three storms – Ali, Bronagh, and Fabienne – brought periods of heavy rain and hurricane-force winds to parts of Western, Northern, and Central Europe. A rare “medicane” also impacted Greece.