Economic damage from natural disasters hits $380 billion
While climate change will cause far graver damage to human life than making it harder for businesses to profit, the damage being done is also starting to take a toll on the global economy. Natural disasters caused $380 billion in economic damage last year, according to research by Aon.
Climate change is directly contributing to humanitarian emergencies – as people struggle through heatwaves, wildfires, floods, tropical storms and hurricanes, which are increasing in scale, frequency and intensity. Research shows that 3.6 billion people already live in areas highly susceptible to climate change – something also contributing to the world’s mounting refugee crisis – while studies suggest that between 2030 and 2050, climate change will cause approximately 250,000 additional deaths per year, from undernutrition, malaria, diarrhoea and heat stress alone.
The warning signs of what is to come are already manifesting. Last year, a total of approximately 95,000 people died due to approximately 400 natural disasters – the highest number of fatalities in 13 years. In that context, the business world’s struggles to deal with climate change may seem relatively trivial – however, the economic damage caused by natural disasters will also inhibit the world’s ability to adapt to the changing environment.
According to professional services firm Aon, natural disasters already cause a lot of economic damage. In 2023, the total amount of damage climbed to $380 billion – of which only 30% – or $117 billion – was covered by insurers. This means that at a time of great economic strain, many businesses will have been forced to simply eat huge losses related to factors beyond their control – and in some cases cease to trade.
As well as meaning economies lose the taxable income of those firms, it also leads those working for such a company to have less to spend in the local economy. While the direct economic damage caused by natural disasters may be considerably lower than it has been in other years – for example, in 2011 or 2016, when the damage amounted to than $700 billion and $600 billion respectively – this means the effects may be far more wide-ranging in the fallout of climate events.
Illustrating the kind of damage being done, floods caused massive disruption in 2023, according to Aon. In Europe, hailstorms and flooding around the Italian cities of Bologna, Cesena, Forlì, Faenza, Ravenna and Rimini were responsible for the greatest economic damage. In total, this amounted to $9.8 billion. During the same period, parts of Germany and the Czech Republic were also affected. In total, the water caused $950 million in economic damage in the three countries. And large amounts of water also caused considerable destruction in China. Inflated seasonal floods destroyed $32.2 billion there, while only 4.3% of that (or approximately $1.4 billion) was covered by insurers.
At the same time, as they sought to show how the impact of natural disasters can continue to wreak havoc long after its end, Aon researchers also determined the cumulative damage per type of natural disaster. This shows that tropical cyclones have caused the most economic damage since the start of the century. Worldwide, this amounts to a total of over $2 trillion.
Floods are the second most costly form of disaster, meanwhile. Over the past 23 years, these together accounted for a bill of $1.7 trillion. Meanwhile, earthquakes caused $1.1 trillion in damage, and severe thunderstorms caused $962 billion. Prolonged droughts caused $915 billion and winter weather caused $299 billion in cumulative damage.
Commenting on the firm’s findings, Aon CEO Greg Case said, “These are challenges today, not problems down the road. However, while many organizations have seen the threat, they have yet to take any action. Climate underpins many of the risks identified by the nearly 3,000 risk managers, C-suite leaders and other executives who participated in our 2023 Global Risk Management Survey. Still, these leaders only rank climate as a top 10 risk when they looked into the future. Rather than waiting for a disaster to strike, leaders can prepare their organisations to address climate risk to increase the resiliency of their operations, workforces and the communities they impact.”
