How do these insights help an organisation build resilience and help the wider industry plan for future insurance impacts?
Future climate impact scenarios are a way of providing a series of theoretical impacts that enable any risk carrier to understand how they might need to adapt their business models and strategies to remain resilient in the future. Being able to understand the impact of future climate on their business enables organisations to adapt and increase resilience to be future ready.
Through a more robust understanding, the insurance industry can also be better positioned to ensure there is sustainable access to required capital to support current and future business development.
What key impacts are expected for the APAC region as we see the phase shift from La Niña to El Niño, and what can we expect with regards to projected losses?
It is generally accepted that climate in the Asia Pacific region follows the cyclical nature of El Niño Southern Oscillation (ENSO), with drier conditions during El Niño and wetter weather during La Niña. Episodes of El Niño and La Niña are known to shift rainfall patterns in different parts of the world, and also shift their onset. This means that hazards such as droughts or floods may arrive earlier and/or cover a larger area.
Key impacts of ENSO follow closely the weather conditions they bring. On land, drought-like conditions during El Niño are associated with bushfires, and reduced groundwater recharge and streamflow, critical for agriculture. Warming ocean temperatures affect fishery in terms of decline in fish catch. Above-normal rainfall during La Niña is typically associated with floods, and increased typhoon activity and/or intensity.
The catastrophic flooding in southeast Australia in February and March 2022, and later in October, which incurred a loss of AUD $5.9 billion[ii], is an example of losses sustained by the insurance industry during the La Niña phase. This followed record-setting bushfires in 2019-2020, with an insured loss of AUD $2.3 billion[iii], coinciding with El Niño. The relationship between La Niña and the industry impact in 2022 is also evident in other parts of Asia Pacific. For example, the Pakistan flooding resulted in USD 15 billion (PKR 4,274 billion)[iv] of direct physical damage and disrupted the livelihoods of 33 million inhabitants. December 2021 and into January 2022 saw significant industry losses with floods in Malaysia and Super Typhoon Rai (Odette) in the Philippines.
If trends of El Niño and La Niña continue based on how we understand their behaviour (in two- to seven-year cycles), then we would expect the associated impacts of flood and droughts of the respective phases of ENSO to hold true.
Losses, both economic and insured, incurred during La Niña are higher than during El Niño, particularly in Australia where we find that we find 80 per cent of flood losses and 65 per cent of cyclone losses occur during La Niña years.[v] Therefore, moving from La Niña to El Niño, we would anticipate the industry to continue to sustain comparable losses as experience suggests, but lower, given the nature of hazards during El Niño.
It is also noteworthy to point out that ENSO monitoring is based on sea surface temperature anomalies over a three-month period ending with the current month. Skilful ENSO prediction can be made at least six months in advance, though there is still a limitation on how far into the future we can project ENSO. This is also complicated by general year-to-year variability in weather and climate across the Asia-Pacific regions.
Find out more in Aon’s 2023 Weather, Climate and Catastrophe Report: Asia Pacific Insights.
We also welcome readers to access our global natural catastrophe analysis.
As your organisation looks to address the risks and impacts of climate change holistically, we’re here to support your journey towards a resilient and sustainable future. Talk to our climate specialists.
[i] Aon, 2023 Weather, Climate and Catastrophe Insight, https://www.aon.com/weather-climate-catastrophe/index.aspx
[ii] Insurance Council of Australia, 2023, Historical Catastrophe Data, https://insurancecouncil.com.au/industry-members/data-hub/
[iii] Insurance Council of Australia, 2023, Historical Catastrophe Data, https://insurancecouncil.com.au/industry-members/data-hub/
[iv] Aon, 2023 Weather, Climate and Catastrophe Insight, https://www.aon.com/weather-climate-catastrophe/index.aspx
[v] Aon, 2022, Say Goodbye to the Big Wet and Excessive Losses, https://aoninsights.com.au/saygoodbye-to-the-big-wet-and-excessive-losses/