According to Aon, Australia could experience a period of reduced natural catastrophes and lower industry losses in the coming years as climate patterns shift from La Niña to El Niño.
Based on weather signals, there is a 70% probability of El Niño developing this year following three consecutive La Niña events. Historically, periods of La Niña tend to result in higher industry losses compared to periods of El Niño, which brings about hotter, drier, and more stable weather conditions.
According to Aon, there is now a greater than double probability of El Niño forming this winter in Australia, reaching its peak in spring and summer. This indicates above-average temperatures, especially in southern and eastern regions of the country, and an elevated risk of high fire-danger weather conditions.
“The historical loss record indicates that periods of El Niño are typically linked to lower losses from floods, cyclones, and overall natural disasters compared to periods of La Niña,” states Aon.
The latest report, “Weather, Climate and Catastrophe Report: Asia Pacific Insights,” from Aon states that their analysis suggests the ongoing triple-dip La Niña event is on the verge of transitioning the Pacific climate into a drought cycle.
Aon suggests that Australia might be entering a phase of decreased El Niño activity, resulting in lower industry losses. While El Niño can bring about adverse effects such as drought, coral bleaching, heatwaves, and health concerns, Aon notes that its impact on long-term loss volatility is relatively uncertain.
Aon suggests that a moderate El Niño event occurring between 2023 and 2025 could shift the Pacific Decadal Variability (PDV) into an El Niño-like phase for the following decade.
The prolonged duration of El Niño-like conditions has the potential to lower insurance losses.
Aon highlights that Australia remains vulnerable to progressively unstable weather patterns, which may be partly amplified by the expanding impacts of climate change. Flooding has emerged as the second most financially burdensome hazard in Australia since 1967, resulting in reported industry losses totaling $23.53 billion. This surpasses losses from hailstorms ($21.45 billion) but remains lower than losses from cyclones ($28.11 billion).
Among Australia’s highest loss years, namely 1974, 1999, 2011, and 2022, all were experienced during La Niña events. Analysis of normalized industry losses since 1967 reveals that 80% of flood losses and 65% of cyclone losses occur during La Niña years, while 40% of bushfire losses occur during El Niño years.
In the previous year, flood losses maintained their position as the most expensive hazard for the third consecutive year, constituting over 61% of the total loss. Insured losses in the APAC region amounted to approximately $US11 billion ($16.2 billion), marking an 18% increase compared to the median.
Approximately one-third of the reported losses were attributed to catastrophes in Australia, amounting to $6.95 billion. Notably, the unprecedented floods that occurred in Queensland and New South Wales in March 2022 constituted the largest insured loss event in Australia, resulting in an industry-reported loss of $5.809 billion.
Aon stressed the significance of “secondary perils” in Australia’s natural hazard landscape. Meanwhile, in New Zealand, the year 2023 has already witnessed record-breaking losses, ranking second only to 2011, which encompassed the Canterbury Earthquake Sequence.
The Auckland floods and Cyclone Gabrielle are projected to result in total insured losses exceeding $NZ2 billion ($1.82 billion) and $NZ1.5 billion ($1.37 billion), respectively.
Tom Mortlock, a senior analyst at Aon, expressed concern about the potential impact of three consecutive years of La Niña events on fuel growth and the preparedness of the landscape for bushfires.
He noted that historical loss records indicate a correlation between bushfire losses and El Niño periods, although to a lesser extent compared to the association between floods and cyclones with La Niña.
Historically, El Niño years in Australia have generally resulted in lower total insured losses compared to La Niña years. Although floods and cyclones can still occur during El Niño, they are less frequent in comparison.
Source : insurancenews.com.au