sigma 2/2020: Natural catastrophes in times of economic accumulation and climate change
Article information and share options
To date, the majority of rising losses resulting from natural catastrophes have been due to the rising exposure accumulation (human and physical assets) that has come with economic growth and urbanisation, the latest signs says. In the coming decades, climate change will be one of many factors contributing more to growing losses. In particular, as world temperatures warm, the frequency of and losses resulting from severe weather events will rise.
No proof does not mean no change
This sigma includes a special chapter written by Professor Adam Sobel of the University of Columbia. The report says climate change effects are in evidence in the world today: warmer average temperatures, rising sea levels, longer and more frequent heatwaves, erratic rainfall patterns and more weather extremes. We provide a sigma extra series as separate appendages, which highlight the impact of climate change effects in specific weather events in the following countries/regions: Australia, Canada, Europe, Japan, Mozambique and the US.
Secondary perils at the frontline, again
After two high-loss years in 2018 and 2017, economic losses from natural catastrophes and man-made disasters in 2019 were lower at USD 146 billion. The insurance industry covered USD 60 billion of last year's losses, down from USD 93 billion in 2018, and also below the USD 75 billion average of the previous 10 years.
Once again, the effects of climate change were manifest most notably in intense secondary perils events in 2019. For example, the very heavy rains that came with Typhoon Hagibis in Japan, the storm surge after Cyclone Idai in Mozambique, and monsoon rains in southeast Asia, all these events resulted in widespread flooding. And, in eastern Australia, record-high temperatures kept wildfires burning across millions of hectares of bushland.
The processes of how a changing climate impacts the frequency and severity of natural catastrophes are not fully understood, but failure to act may lead to irreversible tipping points in climate systems. Importantly, weather-related risks remain insurable, given the short-term nature of most property re/insurance business, which allows for continuous adjustments of risk views.
To sustain insurability, the industry needs to dynamically track the effects of a warming climate, adapting models to an ever-evolving risk landscape, and continually embed new understandings into risk assessment. Key for next-generation forward-looking modelling is understanding how socio-economic factors rooted in the past, but which are currently not fully captured in models, impact rising risk and losses today. That includes complex components like loss creep, which are not always fully reflected in risk models.
Facts & Figures