With over $330 billion in damage from natural disasters in 2022, direct economic losses from weather events last year were remarkable. This week’s host and Aon’s Chief Marketing Officer, Reinsurance Solutions, Alexandra Lewis, is joined by Aon’s Head of Catastrophe Insight, Reinsurance Solutions, Michal Lörinc, and Aon’s Head of Climate Strategy, Dominic Probyn, for a discussion about the findings from Aon’s 2023 Weather, Climate and Catastrophe Insight and what Aon is doing to help organizations make better decisions, manage volatility and enhance global resilience against climate-related risks.
Additional Resources:
Aon’s Weather, Climate and Catastrophe Insight
Reuters: Natural disasters caused $313 bln economic loss in 2022 - Aon
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Voiceover:
Welcome to “On Aon,” a now -winning podcast featuring conversations between colleagues on, well, Aon. This week, we hear from Michal Lörinc and Dominic Probyn on findings from Aon’s 2023 Weather, Climate and Catastrophe Insight Report. And now, this week’s host, Alexandra Lewis.
Alexandra Lewis:
Today we're talking about the $313 billion of damage from natural disasters in 2022, which was the fifth costliest year on records for insurers. And looking at how climate is making an impact as we delve into the trends, how can we help organizations make better decisions, manage volatility and enhance global resilience?
To discover more data from our latest weather, climate, catastrophe reports, with me today are Michal Lörinc and Dom Probyn. My name is Alex Lewis and I've been a colleague at Aon for 18 years now, currently as Aon's Chief Marketing Officer for our Reinsurance Solutions business. And I'm particularly passionate about how we can help protect and the enrich lives around the world, especially as we're recording, it's just the week after the earthquake in Turkey and Syria and thinking about those people who've been impacted.
Michal has been with Aon since 2016 and currently serves as Aon's Head of Catastrophe Insight, while Dom has been with Aon since 2018 and is Head of Strategy for Aon's exciting new Climate Team. Many thanks, Michal and Dom, for being here today.
Michal Lörinc:
Thank you, Alex. I'm excited to share the insights from the report also on this platform. And Alex, we have worked together on many projects throughout the years, but there's one thing that might surprise you and that I am an amateur podcaster as well. Several years ago, my friend and I started a podcast of our own. Unfortunately, it was a largely unsuccessful passion project, I would say, because we only recorded about five episodes. But nevertheless, I think that spreading the message about catastrophes and implications of natural disasters on various platforms is definitely great and happy to be here today.
Alexandra Lewis:
Thanks Michal, and excited that we have a professional podcaster on the call today. And Dom, how about you?
Dom Probyn:
Thanks, Alex. I'm pleased to be here today as well and talk to colleagues on this really fascinating topic, a topic which impacts us all without exception and is one of the best ways I found to bring colleagues and clients together with a strong sense of purpose. , I'm really excited for this conversation.
Alexandra Lewis:
Excellent. Well, to kick us off, let's go for a quick warmup. And as you mentioned, Dom, climate is obviously one of the most important topics across the world today. , if there's one thing that you'd like our listeners to do following this podcast to help make an impact, what would that be?So, Michal, let's kick off with you.
Michal Lörinc:
I think what people might do is something that I already mentioned, basically spread the message. And I don't mean start your own podcast. It could be simply just maybe sharing some materials that we put out or maybe a link to our report or maybe this podcast episode.
Alexandra Lewis:
That sounds like a great plan to help spread the words. And Dom, what about you?
Dom Probyn:
I believe that every job is a climate job. , I would love all the listeners to think how they can bring climate thinking into their work. No matter what it is that they do, talk to your clients, talk to your suppliers, talk to your colleagues and talk to those with whom you do business and let great ideas flow from those conversations.
Alexandra Lewis:
I love it. I think we're off to a very inspirational start here. , let's jump right in and look at some of the data and some of these themes that we can further discuss.So, Michal, as we look back to 2022, to understand some of these lessons learned, what were some of the most surprising trends from natural disasters in the weather?
Michal Lörinc:
Well, it's pretty difficult to look at 2022 natural disasters and avoid Hurricane Ian because it was of course the largest catastrophe, the costliest one in 2022. In fact, it was the second costliest disaster for insurers on record globally. What's interesting that generally, the hurricane season was expected to be above average in terms of frequency. But eventually, Hurricane Ian was the only really significant storm of the season in the Atlantic. This exact thing happened in 1992 where we had Hurricane Andrew. It was also the only significant hurricane of that particular season, but it was also a game-changing disaster because it's completely changed the insurance reinsurance environment. It only takes one storm to completely change the statistics.
Another type of natural disasters that we've seen repeatedly during 2022 was drought and heat waves. And this is a type of peril that is increasingly influenced by climate change. And yes, we've seen it on almost all continents, whether it was North America, Europe, Africa or Asia. And in fact, insured losses from droughts were the second highest on record.
While we've seen a lot of droughts and heatwaves, we've also seen heavy precipitation events such as in Australia. There was also a very significant event where the Australian insurance sector had the costliest event on record, especially Sydney. Very, very significant rainfall throughout the year and it ended up as the wettest year on record. , we mentioned several significant disasters that have been throughout the world. But in reality, the total economic losses were only slightly above average since 2000. Nevertheless, it was the fifth costliest year for insurance. And it was mainly because the disasters happened or occurred in the countries with relatively developed insurance market. So, the eventual protection gap, which is basically the difference between total economic losses and was insured, was actually one of the lowest on record.
Alexandra Lewis:
It's a very interesting stat, I think, because it helps to put into context the impacts on people across the world and how the insurance industry still has a role to play in helping to bridge that gap. , Michal, when you look at the data across natural disasters and particularly climate, what impacts are they having on communities around the world?
Michal Lörinc:
Well, the impact is substantial, and I think we've seen more significant impacts in countries that are not well-prepared to face it. So, for example, when you look at countries such as Pakistan, which experienced severe flooding in 2022, the fact that they are not able to respond to it effectively creates secondary issues. So, much of the total damage in Pakistan and also the following humanitarian disaster was not due to the... Sorry. It was not due to the flooding itself, but also because of the inability to respond to the disaster in an effective manner. So, the over resiliency of the community is very important here, and I think insurance is a part of it. So, insurance has a role to play in the future because these countries have a very low take-up rate when it comes to these perils. I mentioned low protection gap. In America, the coverage is much higher. In countries or in regions like Europe, Australia or Japan, take-up rate is high. But in countries such as Pakistan, South Asia, Southeast Asia, China, there is still a way to go.
Alexandra Lewis:
And so, data is obviously at the heart of helping people by really identifying the trends and then working out the best solutions. , tell me a little bit on how you actually source and manage that data to make sure it's as credible and robust as possible.
Michal Lörinc:
, we have an internal database of historical events on which we base a lot of these analyses. And we made significant effort to basically fill the gaps which are present in similar databases. So, to really research natural disasters in under-reported regions. What we've included this year as well is more comprehensive data on heat waves because one of the things we've seen last year is a high fatality rate due to heat, especially in Europe where we had significant heat waves in June and July. And it caused more than 15,000 people to be killed.So, what we did was basically collect mortality data from human mortality database, compared it with the periods of exceeding heat from a meteorological standpoint, and basically isolated the excess mortality during these heat waves and included it in our database to get a full picture of a fatality rate during heat waves.
Alexandra Lewis:
Well, thank you for a sneak peek behind the scenes of some of your data there. And Dom, I think with that backdrop, I'm sure you agree that this really highlights some of the challenges that we are facing across the world today. And with climate being top of mind for governments, communities and businesses across the world, tell us a little bit more around the role of our new Climate Team at Aon, and what's your mission?
Dom Probyn:
Thanks, Alex. The central team was established at the beginning of 2021 to define Aon's global climate change strategy and then work collaboratively with the whole of Aon to execute upon it. It's a hugely exciting challenge, but no small task in a business as large and as diverse as Aon's. But the outcome of that work is a strategy grounded in an understanding of where the biggest flows of capital need to go in order to uphold resilience, enable transition and create opportunity.
To summarize, Aon's mission is to collectively accelerate investment towards a resilient and regenerative economy. Now, practically speaking, Aon has been serving clients with climate-related solutions for many years, and teams in the business continue to do more and more. The central team is just here to support and empower Aon colleagues by creating some global connectivity, sharing best practice client case studies to help our colleagues to find new ways to support clients. Climate change is having a really big impact on those groups, you mentioned in your question, Alex, governments, communities and businesses. And whilst we are really proud of the work we already do as a firm in Aon, we know there is a lot of room in our industry for more innovation and growth. And Aon's investment in the central capability will also help address the unmet needs of our clients.
Alexandra Lewis:
Excellent. , it sounds like we are really bringing the sort of best of Aon together to help tackle some of these big issues. And based on the data we've just heard from Michal, where do companies actually start in identifying and mitigating their risks?
Dom Probyn:
Yeah, a good question. , as we know from Aon's Weather, Climate and Catastrophe Insight Report and everything Michal has just told us about, direct economic losses from weather events in 2022 were really remarkable.So, the physical risk and rise in climate change don't just create direct economic loss, but they're also causing significant frustrations and challenges in the form of things like disrupted supply chains or potential employee wellbeing challenges and the challenges of companies having to adjust operationally to increasingly frequent weather events.
Furthermore, climate change is about much more than just physical risk. And the transition itself brings many challenges. Setting and executing a climate change strategy is a transformation task for many of our clients, increases the cost of doing business, changes to the operating model, increased volatility, there is increased pressure from investors, lawmakers, customers, employees to decarbonize, and there are increased compliance and reporting requirements, as well as a changing liability landscape. In terms of how companies should approach identifying these risks and opportunities, a range of voluntary and mandatory reporting frameworks offer guidance. The Taskforce for Climate-related Financial Disclosures, or TCFD as it's known, has emerged as a reference point for climate disclosure rules as they come into law and regulation around the world.
Aon is working closely with clients on TCFD reporting already, and as risk and opportunity experts, Aon supports clients to select the best partners to help them as they undertake their analysis. Aon has got solutions and colleagues who also undertake that forward-looking analysis in collaboration with clients. And Aon is really well-placed to interpret the output and inform risk financing and risk transferred decisions as well.So, being able to pull all of that capability together end-to-end, makes us a great strategic partner for our clients as they begin this journey.
Alexandra Lewis:
Excellent. And it's incredibly exciting to hear a positive spin on this. And of course, there's a lot to negotiate when bringing together that framework and strategy, thinking about your different stakeholders you mentioned and how do you transition effectively. But how do you then think about those practical solutions? Are we considering new innovation or is there a way that we can simply make better use of some of our existing tools?
Dom Probyn:
It's definitely both. It's definitely both, Alex. And Aon works in different ways to help clients across both those areas. We analyze our client's situation. We can recommend solutions from our existing set. There are lots of existing things that offer huge value to our clients as they execute their climate strategy. We've referenced a lot our physical risk analytics expertise, but risk transfer solutions, like Parametrics, can be scaled and utilized more to meet the climate challenge. And from a transition perspective, ensuring things like there being enough D&O cover is critical along with environmental liability policies and as a company transforms to decarbonize.
We're also seeing how a suite of insurance products such as structured credit and political risk can give sustainable finance investors greater confidence in new deals. And these are all things that are already familiar to Aon, to Aon colleagues and to Aon clients, we're just applying them in the context of a climate strategy.
Now, in terms of innovation, we are working with clients in novel ways to create strategic partnerships, working closely with them and decision makers to offer advice and solutions earlier at the point of decision making in green finance. And this is ultimately to encourage more investment. We're also looking at new ways to incentivize transition with insurance solutions that bring more insurance capacity to new energy technology. And we do this through co-creation with clients and insurance markets. , I hope both of those groups take this as an invitation really to ideate together.
Alexandra Lewis:
It's certainly a very compelling argument to work more collaboratively. And looking at that broader context then, how important do you think the role of the insurance industry is in helping the world to transition to net zero?
Dom Probyn:
Well, ensures can help solve the climate crisis by matching capital to risk where it's needed, through de-risking new projects, clean technology. And all of that will encourage faster and more meaningful investment. But achieving a net zero transition is going to require something like three and a half trillion US dollars in annual net new investment over the next 30 years. It is a huge amount. And this spending will require insurance capacity at a scale that goes well beyond the balance sheets of existing P&C carriers. , it's not just that the industry could grow as a result of climate change, it's that the industry really must grow if it's to play a material role. And as our CEO, Greg Case says, at a time when these risks are growing, we should be getting bigger to help support these risks.
We can see today that forward thinking insurers are trying to create solutions that safeguard business, governments and communities. But we think more work needs to be done as our role in improving resilience in the economy evolves. The industry is moving away from carbon intensive, high emitting industries, but not enabling and supporting their transition. We are not moving fast enough as an industry to support low carbon technologies that really help accelerate the climate transition. Insurers need to engage more to build solutions that help accelerate the climate transition and capture our biggest opportunity, which is to de-risk investment into the global economy.
Alexandra Lewis:
Well, that's a fantastic call to action there for the insurance industry. Thanks, Dom. But before we sign off, Michal, we learned a little bit earlier how you enjoy doing podcasts in your spare time. But when you are not delving into catastrophe data, what is your favorite thing to do when you're not working?
Michal Lörinc:
My favorite thing to do is probably just spending time in nature during any activity, but mostly road biking or mountain biking or just hiking, and just seeing the nature and the elements at work. And maybe seeing the processes that we call natural disasters but are really part of the natural cycle. , really watching that and perhaps seeing the vastness of it and maybe how small we are compared to it. That's a very humbling but also enjoyable activity for me.
Alexandra Lewis:
That's wonderful. Respecting the environment and really taking it in, so very important. And Dom, how do you like to spend your weekends?
Dom Probyn:
Well, I've got a six-year-old boy and I like to spend as much time as I can with him. Fortunately for me, he likes a lot of outdoor stuff like swimming, football, and even walking in the woods. , all things I love too. And we certainly like to get out into nature and understand the world all the more.
Alexandra Lewis:
Fantastic. It sounds like we should all go on a big wooden [inaudible 00:22:00] together soon and talk about how we can help protect the environment.
Voiceover:
This has been a conversation “On Aon” and Aon’s 2023 Weather, Climate and Catastrophe Insight Report. Thank you for listening. If you enjoyed this latest episode, tune in soon for our next edition. You can also check out past episodes on Simplecast. To learn more about Aon, its colleagues, solutions and news, check out our show notes, and visit our website at Aon dot com.