By Will Bugler
Global economic losses from disaster events topped 146 billion dollars in 2019, including 60 billion in insured losses, according to the latest sigma report issued by reinsurance giant Swiss Re. Yet again, extreme weather events were the main loss drivers, with insurers expecting that growing catastrophe severity will drive greater losses in the future.
Of the economic losses in 2019, 94% were due to natural disasters (137 billion dollars), with man-made events causing the remaining 6% (9 billion dollars). The biggest industry loss events of 2019 happened in densely populated and developed parts of Japan: Typhoon Faxai in September (insured losses of USD 7 billion); followed by Typhoon Hagibis in October (additional insured losses of USD 8 billion).
Despite the high loss numbers, 2019’s economic losses were smaller than the 10-year average, that is currently running at 212 billion dollars. According to the report, this is largely due a relatively quiet US hurricane season.
Losses were further amplified by socio economic changes, including population growth and increasing numbers of high value assets being built in climate vulnerable areas. “Economic development and ever-increasing population concentration in urban centres, alongside changes in climate, will continue to increase losses due to weather events in the future,” said Edouard Schmid, Chairman of the Swiss Re Institute and Group Chief Underwriting Officer at Swiss Re.
Weather risk insurable ‘only with climate adaptation’
The “Natural catastrophes in times of economic accumulation and climate change” report, emphasised that weather risks remain insurable, so long as climate adaptation actions were taken. However, it warned that insurers should not build their risk models on historical records, as they miss future socio-economic and climate trends. The report also warned that failure to take immediate tangible action to confront warming temperatures could lead to climate systems reaching irreversible tipping points. This in turn could jeopardize insurability, particularly in areas where urbanisation and economic development have led to high levels of concentration of asset (human and physical) value exposure.
“To uphold the insurance risk transfer model as a powerful tool to foster resilience, insurers need to adapt before, not post events,” Martin Bertogg, Head of Catastrophe Perils at Swiss Re said. “To this end, insurers should be wary of historical loss records in understanding today’s state of the socio-economic environment and climate. Averaging out over a past spanning multiple decades can lead to distorted risk assessment.”
COVID-19 has been a clear demonstration of the sort of economic and social disruption that can be caused by global-scale systemic shocks. Climate change has the potential to trigger a string of such shocks as various tipping points are crossed.
Continued development requires continued adaptation action
Economic development and population spread leads to changes in land use resulting in, for instance, deforestation and construction in flood plains and wildland-urban interface. Another variable is the scale of risk mitigation infrastructure like flood barriers and sea defences. This all influences the scale of losses inflicted by extreme weather events and other natural disasters.
Typhoon Hagibis is a case in point. Japan has always had high exposure to typhoon risk, and with huge investment in coastal and inland flood defence following the devastating typhoon events in the 1950s and 1960s, the re/insurance industry had considered flood risk in Japan to be largely mitigated. However, most of the 8 billion dollars in insured losses from Typhoon Hagibis came from floods, and due to urban development since the mid-20th century, Tokyo was unprepared for the degree of physical damage it suffered.
“While flood defences prevented major havoc in parts of Greater Tokyo, at least 55 levee breaches and overflowing rivers illustrated that water inundation risk is only partially mitigated,” Bertogg said. “The flood defences mitigated the impact, but by no means entirely.”
Climate change effects are already evident, and include rising sea levels, longer and more frequent heatwaves, and erratic rainfall patterns. In 2019 specifically, the rainfall-induced floods that came with Typhoon Hagibis, the storm surge driven flooding from Cyclone Idai in Mozambique, and monsoon rains in southeast Asia and from other weather systems wreaked economic and humanitarian havoc. Record-high temperatures in eastern Australia kept wildfires burning across millions of hectares of bushland in the longest-running wildfires the country has ever seen.