Understanding Climate Phenomena: El Niño-Southern Oscillation and the Indian Ocean Dipole

It is generally accepted that the world’s climate follows the cyclical nature of the El Niño-Southern Oscillation (ENSO), resulting in most of the Asia Pacific (APAC) region facing 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, meaning hazards such as droughts or floods may arrive earlier and/or cover a larger area.

The impacts of ENSO follow the weather conditions they bring. On land, drought‑like conditions are associated with wildfires and reduced groundwater recharge and streamflow, which are critical for agriculture. Warming ocean temperatures also affect fisheries 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.

ENSO also has profound impacts on monsoonal weather. The relationship between ENSO and monsoons has also been shown to be modulated by other large-scale processes, prominently the Indian Ocean Dipole (IOD).

Understanding how ENSO and IOD affect weather and the climate is essential for predicting future conditions which can help the (re)insurance industry anticipate financial losses. ENSO is often seen as the primary driver of inter-annual loss variability. For example, in Australia, La Niña episodes are often associated with larger losses because of the nature of hazards. In contrast, El Niño-associated negative monsoon rainfall anomalies can contribute to poorer crop performance in India, resulting in higher-than-average market-wide crop insurance loss ratios.

Early 2023 marked the end of a rare triple-dip La Niña. Its end is only a harbinger to the next oscillating phase – El Niño. In early June 2023, the Climate Prediction Center (CPC, part of NOAA) announced that El Niño conditions are currently present and expected to strengthen. Under persistent El Niño conditions, historical data suggests that:

• Due to the complex weather interactions in East Asia, a variety of situations could be expected including a weak summer monsoon; higher temperatures and reduced precipitation in North China; lower temperatures and potential flooding in South China; and warmer winters and cooler summers in Japan.
• South Asia may experience poorer/delayed Southwest Monsoon rains, which can impact water availability and crop planting/yields. Stronger Northeast Monsoon rains may be expected especially for South Peninsula India, which can impact crop harvest and cause flood/inundation.
• Southeast Asia may experience drier or drought-like conditions.
• Australia and New Zealand may now be entering a more quiescent period of El Niño and therefore lower overall property industry losses, but potentially higher losses for agriculture.

Read more about the climate phenomena of ENSO and IOD and their impact on the APAC region and associated insurance industry losses.