The world lost a lot of money due to climate change in 2022: The world suffered USD 313 bn in economic losses in 2022 due to natural disasters, most of which were caused by climate-related events, according to a report by Aon. The insurer estimates that disasters triggered by climate and weather events caused USD 299 bn in losses, less than half of which were covered by ins.

Most climate-related losses remain uninsured: Only USD 132 bn was covered by ins, equating to 42% of total losses suffered around the world. Despite this, insured losses were well above the short-, medium- and long-term averages, and resulted in 2022 being the fifth-costliest year on record for the industry.

More large-scale disasters were insured than usual: Of the 421 notable disasters that occurred in 2022, 39 caused more than USD 1 bn in economic losses and at least five exceeded USD 10 bn. Hurricane Ian, which struck the US and the Caribbean in September, caused almost USD 100 bn worth of damage, making it the most costly disaster in 2022 and one of the costliest weather events on record. Meanwhile, summer droughts in Europe and the US inflicted losses of USD 38 bn.

The problem is larger in developing countries: The lower protection gap was largely caused by several major disasters occurring in the US, whose mature ins. market was responsible for 75% of global insured losses. Disasters occurring elsewhere around the world are less likely to be covered. Insurers covered only 14% of losses seen in the Asia-Pacific region — where USD 15 bn of damage was caused by floods in Pakistan — and 26% in the Americas excluding the US.

This is why loss and damage and other climate finance initiatives are so important for the global south: Last year’s COP27 climate conference witnessed the signing of a landmark agreement to establish a loss and damage fund to help developing countries shoulder the costs of climate-related disasters. The fund is expected to be capitalized by rich nations and was a big victory for the global south which has long argued that advanced economies should pay up for disproportionately contributing to climate change.

Greater amounts of wealth and higher populations will inflict more losses on the ins. industry, even if climate risks remain the same, Aon says. With the world population now more than 8 bn and global GDP up 80% since the year 2000, economic losses caused by natural disasters are higher than they were the previous century.

Egypt has been spared large-scale disasters and hefty economic losses: The country suffered USD 346.7 mn in economic damages during the first two decades of the 21st century, according to World Bank (pdf) estimates. Almost 1.5k people lost their lives over the 20-year period.

But the country is at high risk of natural disasters: The UN (pdf) has named the Nile Delta as one of the world’s three “extreme” vulnerability areas, and risks are expected to heighten in the coming years due to rising sea levels, growing water scarcity and an increased likelihood of extreme weather events.

We only need to look at the Ever Given, which demonstrated the extent to which weather events — sandstorms in this case — can threaten critical trade routes, disrupt canal operations and global supply chains, according to a recent study (pdf) by global ins. broker Marsh. With use of the Suez Canal constituting 2-3% of Egypt’s GDP and a valuable FX and foreign trade source, ensuring reliable use and risk management of a key waterway is paramount, it says.

Insurers are taking notice: In a 2021 report (pdf), Allianz Egypt said that losses caused by natural disasters have increased, “implying high risk and volatility for the ins. industry.” Since setting up in Egypt, the insurer has paid out EGP 1.1 bn in compensation for natural disasters, it said at the time.

Industry figures are trying to develop the local ins. market to handle climate risks: The Ins. Federation of Egypt (IFE) is working with large reinsurers and reins. brokers to establish a natural disaster ins. pool, a move that would strengthen the industry’s capacity to underwrite natural catastrophe risk. The federation and the Financial Regulatory Authority have also been in discussions with the UN (pdf) about drawing up a roadmap for developing the local market for sustainable ins.

So where do we go? During COP27, UN high-level climate champions led by Egypt’s climate czar Mahmoud Mohieldin called on (pdf) the global ins. sector to expand direct support for climate risk reduction projects and develop a common framework for de-risking, financing and accelerating climate adaptation. A number of global organizations are coming up with mechanisms to increase the effectiveness of ins. to mitigate climate-related losses, including the Ins. Development Forum, Axa, whose researchers are developing new climate risk assessment tools, and Guy Carpenter, which has articulated how reinsurers and public-private partnerships can be utilized to harness the private sector.

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