Australia may be entering a more inactive natural catastrophe period and face lower industry losses in the years ahead as climate patterns transition from La Nina to El Nino, Aon says.

Weather signals suggest a 70% chance of an El Nino developing this year after three consecutive La Nina events. Periods of La Nina typically lead to higher industry losses than periods of El Nino, which brings hotter, drier and more settled conditions.

Aon says there is now more than twice the normal likelihood that El Nino will begin to form this winter in Australia, peaking in spring and summer. This signals warmer-than-average temperatures, particularly across southern and eastern Australia, and an increased likelihood of high fire-danger weather days. 

“The historical loss record shows that periods of El Nino – in comparison to La Nina – are associated with reduced flood, cyclone and overall losses.

“Aon’s analysis suggests the current triple-dip La Nina event is about to push the Pacific climate into a drought cycle,” the latest Weather, Climate and Catastrophe Report: Asia Pacific Insights report said.

"Australia may now be entering a more inactive period of El Nino and lower industry losses.”

Although pervasive El Nino can bring drought, coral bleaching, heatwaves and human health implications, Aon says it is a “relatively unknown driver of decadal loss volatility”. 

“A moderate El Nino event in the 2023-2025 period could flip the Pacific Decadal Variability (PDV) to an El Nino-like phase for the ensuing decade. A sustained decadal period of El Nino-like conditions would potentially exert downward pressure on insurance losses.”

Aon says Australia continues to be exposed to increasingly volatile weather conditions that “might in part be enhanced by the growing effects of climate change”. Flooding is now Australia’s second-most costly peril since 1967 – causing a total of $23.53 billion of industry reported losses, surpassing hailstorms ($21.45 billion), but behind cyclones ($28.11 billion). 

Four of Australia’s highest loss years - 1974, 1999, 2011 and 2022 - were all under La Nina. Normalised industry losses since 1967 show 80% of flood losses and 65% of cyclone losses occur during La Nina years, and 40% of bushfire losses occur during El Nino years. 

Last year, flood losses were the costliest peril for the third consecutive year, accounting for more than 61% of the loss total. Insured losses in the APAC region reached around $US11 billion ($16.2 billion), up 18% on the median. 

Roughly a third were related to catastrophes in Australia, with $6.95 billion of industry reported losses. Record March 2022 floods in Queensland and NSW floods were the largest insured loss event for Australia with a reported industry loss of $5.809 billion.

“This emphasises the importance of ‘secondary perils’ to Australia’s natural hazard environment,” Aon said.

In New Zealand, 2023 has already been a record-breaking loss year, second only to 2011 which included the Canterbury Earthquake Sequence. Auckland floods and Cyclone Gabrielle are expected to generate total insured losses over $NZ2 billion ($1.82 billion) and $NZ1.5 billion ($1.37 billion) respectively.

“After three years of back-to-back La Ninas, the concern is fuel growth and the preconditioning of the landscape for bushfire,” Aon senior analyst Tom Mortlock said. “The historical loss record shows us that bushfire losses are correlated to periods of El Nino, albeit to a lesser extent than floods and cyclones are to La Nina.

"El Nino years have typically led to lower total insured loss years in Australia than La Nina years, and while floods and cyclones do occur during El Nino, they are less likely.”