Extreme weather risks in Asia-Pacific
Closing the protection gap to pivot toward a more resilient future
Annual losses from weather disasters such as tropical cyclones, floods or wildfires frequently run into hundreds of billions of dollars. And that is just the figure for direct losses.
In Asia-Pacific, weather-related natural disasters have caused losses of US$ 1,800bn since 1980 and killed more than 690,000 people. The rapid urbanization and economic growth of the region have also further contributed to the increasing extreme weather risks, especially for emerging markets. The protection gap is alarming: excluding the figures for Japan and Australia where the insurance penetration tends to be higher, it’s at around 95%. This means that less than 5% of the overall losses were borne by insurers.
It is time to act and to mitigate the consequences, especially as climate change is increasing the extreme weather risks in many regions. So far, climate change has not been a systemic risk, but it will be if global warming continues unabated.
Here's what we know from 50 years of research:
While the effects of climate change are long term, natural climate variations have a direct influence on many weather extremes over shorter periods, sometimes even over a matter of months. Here are some examples of this:
El Niño-Southern Oscillation (ENSO)
The natural ocean temperature variation in the Pacific with the two countervailing versions of El Niño and La Niña also changes circulation patterns in the atmosphere, thus influencing weather extremes across the world.
El Niño conditions tend to bring slightly higher typhoon activity in the Northwest Pacific, drier weather in Australia/Oceania and more rainfall in South India and the Southeast of China. La Niña has the opposite effect in many cases. It increases the likelihood of floods in Australia, drought and heatwaves in China, and heavier monsoon rains in parts of South Asia. For example, in 2022, a protracted heatwave and drought with accompanying temperatures of over 44°C in many parts of China led to significant water level recession in the Yangtze, the longest river in the country, as well as in many other rivers and reservoirs.
Protection gap: Extreme weather risks in Asia-Pacific
While just one-tenth of weather-related natural disaster losses in Asia and Australia/Oceania since 1980 have been covered by insurance, the protection gap across different countries in the APAC region varies depending on the market maturity.
For example, the protection gap of Australia is 60% and that of Japan is 53%, while the rest of the region has an exceptionally large gap of around 95%. This illustrates that underinsurance is most extreme in emerging countries and underscores the urgent need to increase awareness around both the impacts of extreme weather and the importance of adaptation and risk mitigation measures to improve resilience now and into the future.
Losses from weather-related natural disasters in Asia and Australia/ Oceania 1980-2022
Weather-related natural disaster losses 1980-2022: US$ 1,800bn
Thereof insured losses
1980-2022: US$ 190bn
Insurance helps people, companies and society to recover more quickly from the financial impact of a catastrophe. It is also crucial to have the preparedness, and combined efforts between the insurance industry, governments and decision-makers to promote proactive risk mitigation through new policies and infrastructure changes.
Profound knowledge of scientific correlations, statistical trends and relevant high-resolution data are essential elements when assessing extreme weather risks. Our experts are part of an international scientific network providing the risk analyses that form the basis for our risk models. This allows us to have the best-possible offer of weather-related and weather-disaster covers and to develop new concepts for previously uncovered risks for a whole range of different client groups.
Benefit from our data and decades of experience in assessing extreme weather risks and the factors behind them. Munich Re can offer solutions to meet your specific requirements.