Storm Warning: How 2017’s Natural Disasters Highlighted The Protection Gap

Jump to Section:


The need to plan for natural disasters took on a new urgency in 2017: The year was one of the costliest on record for the U.S. This was repeated across the globe, with natural disasters leading to $353 billion in economic losses and $132 billion in insured losses. These losses highlight the global protection gap — the difference between the cost of damages and what’s covered. In the most vulnerable regions, the gap becomes clearer.

“Last year taught us that we continue to live in an increasingly volatile world, with more people and exposures located in vulnerable spots,” says Steve Bowen, Director and Meteorologist, Aon Benfield. “Identifying ways to increase awareness, improve communication, and lower the insurance protection gap will help us better prepare for the next major event.”

In Depth

The damage caused by natural disasters in 2017 was historically significant:

  • Natural catastrophe losses were 93 percent higher versus the 2000-2016 average.
  • Total insured losses were 63 percent above the 2000 to 2016 average ($51 billion), on an inflation-adjusted basis.
  • Insured losses to the private sector and government-sponsored programs reached $134 billion — the second-highest level ever recorded, just behind 2011’s record $137 billion.

“We are seeing an over-capitalized insurance industry at odds with global under-insurance,” says Eric Andersen, CEO, Aon Benfield. “Given that the gap between insured and economic losses from Harvey, Irma and Maria alone has been estimated at more than $100 billion, there is clearly a real need to further unite capital and risk.”

Severe Weather Drove The Greatest Losses

Aon Benfield’s latest Weather, Climate, and Catastrophe Insight report identifies 330 natural disasters in 2017, including weather events, wildfires, earthquakes, and other perils. About 97 percent of the losses came from weather events, including Hurricanes Harvey, Irma and Maria in the U.S. and Caribbean.

In fact, 2017 set a record as the most expensive year in history for weather disasters, with $344 billion in global economic losses from storms and drought.

The numbers were startling. For example:

  • In the Americas alone, Hurricanes Harvey, Maria and Irma racked up an economic cost of $220 billion.
  • In the Asia-Pacific region, catastrophic summer floods caused more than $12 billion in damage across China.
  • In Southern Europe, an extended drought caused $6.6 billion in damage across parts of Spain, Italy and Portugal.
  • In Japan, four typhoons and a tropical storm left $1.1 billion in economic losses.

These were just a handful of the 31 natural disasters worldwide whose economic damage totaled $1 billion or more.

The Importance Of Risk Transfer: Why Insurance Coverages May Become More Critical To Protect Important Infrastructure

Bowen explains that “cost” can be even more dramatic in developing countries: “Such weather-related events can lead to other economic and societal challenges such as extended loss of electricity, water, and inability to access necessary infrastructure such as roads and bridges.”

The coming years could bring a repeat of 2017’s losses, or worse, as more and more people continue to migrate to coastal areas — regions especially at risk of hurricane and flood damage. And while flooding typically occurs inland in Cambodia, the monsoon season from May to October typically causes millions of dollars in expenses for lost crops, damaged property, and relocation needs.

Those areas, and others vulnerable to severe weather or natural disasters, are sometimes significantly underinsured. For example:

  • Insurance covered just a fraction of the 570,000 homes lost to two major flooding events in China.
  • Economic losses due to the flooding in Thailand were expected to reach $860 million, but fewer than 6 percent were expected to be covered by insurance.
  • Even in the U.S. and Caribbean, where insurance penetration is generally greater, only 36 percent of economic damage from Hurricanes Harvey, Maria and Irma was covered by insurance — meaning about $140 billion wasn’t.
  • In Japan, which suffered four typhoons and one tropical storm, insurance covered 55 percent of economic losses, which totaled $1.2 billion.

“We know natural disasters are going to occur,” Bowen says. “The question is how prepared are we going to be when the next one strikes.”

Talking Points

“I believe strongly that we need to expand flood coverage in the United States, and the private insurers are part of that” — Roy E. Wright, Director of Flood Insurance Program, Federal Emergency Management Agency (FEMA)

“In 2017, we have seen the rare combination of high disaster frequency, disaster cost and diversity of weather and climate extreme events” — Adam Smith, Lead Researcher, National Centers for Environmental Information, National Oceanographic and Atmospheric Administration (NOAA)

Further Reading