Extreme weather in a changing climate: how can we be more resilient?
Devastating floods in Europe and China, record heat and wildfires in the Pacific Northwest – local communities are bearing the brunt of more severe and frequent weather events. We owe it to them to take action now.
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Record floods in Germany, raging wildfires in the Northwest US and Canada, severe flooding in China – the series of natural catastrophes in recent weeks point to a world increasingly at risk from extreme weather. Tragically, hundreds of people lost their lives, many more are still missing and thousands suffered severe damage to their property. Our hearts go out to them and their families – and to all the communities affected.
Although we cannot attribute an individual natural catastrophe directly to global warming, we can say that climate change is an important contributing factor. Rising temperatures that warm up our atmosphere create the very conditions – extreme heat, extreme precipitation – under which such severe weather events occur. As a result, we've seen the frequency and severity of extreme weather events increase.
Global phenomenon, local impact
In Germany and Belgium, the recent flooding followed severe weather across western Europe in the second half of June, including thunderstorms, hail and tornadoes. The sheer volume of rainfall is consistent with what scientific research on climate change has indicated will occur. It's a prime example of how more unusual heavy precipitation occurrences or stalled weather patterns are becoming more frequent as the planet continues to warm up.
Similarly, the record heatwave and subsequent wildfires in the US Pacific Northwest and Canada illustrate a case where climate observations, models and theory converge. When a prolonged heat spell like this one occurs, we can say with confidence that global warming made it more likely and more intense. Prolonged heat and low rainfall create the severe dry conditions conducive to wildfires.
On collision course: urban growth and climate change
As urban populations grow and our climate continues to change, there is little doubt that we will see a continued increase in more extreme weather events leading to human tragedy and extensive damage in built-up areas, as we have just observed in western Europe or the Pacific Northwest. But that doesn't mean we are helplessly exposed to climate impacts.
Climate change is at play in changing the frequency and severity of extreme weather. As of today, however, it is not the only driver of increasing disaster risk in terms of frequency and severity. For example, the risk to life and property is largely linked to man-made factors such as poor urban development and land use planning, inadequate disaster risk preparedness or vulnerable housing stocks. In other words, we live, build and work in areas most at risk, even when we remove the effects of climate change: cities and towns along the coast, near rivers, forests or wildland.
The result is that local weather events such as flooding, thunderstorms, hail and wildfires – known as "secondary perils" – are increasingly putting more people at risk, causing more damage and pushing up insurance losses.
Taking the development of insured losses over the last five decades as a proxy, average annual losses have increased by more than an order of magnitude, inflation corrected. This translates into 5 to10% growth per year, where a large portion of it can be explained by developments in high-risk areas, putting more buildings, infrastructure and value assets in harm's way.
Damage from wildfires is rising faster than from any other secondary peril – a sign of hotter, drier weather. In the last four years, wildfires were responsible for 23% of all secondary-peril insurance losses worldwide. Before 2016, the share averaged 3% and rarely exceeded 5–10%.
In all, the world suffered USD190 billion-worth of economic losses due to natural and man-made catastrophes last year. And over 7,000 people died or went missing as a result of disasters. The insurance industry covered USD 81 billion of these costs – the fifth highest amount since 1970. On average, insurance has historically picked up about one-third of losses caused by natural perils.
Yet underinsurance is a massive challenge. The global protection gap amounts to about USD 140 billion on a ten-year average, with regional variations – about two-thirds of losses were uninsured. According to the German Insurance Association (GDV), only 46% of properties in Germany have insurance coverage against floods – even though they are a known risk in Germany and central Europe.
Worldwide, of the disaster losses that were insured last year, 70% resulted from secondary perils like the floods and wildfires we just experienced, exceeding the longer term historical average of 50%. Typically classified as high-frequency, low-to-medium-severity events, these extreme weather occurrences are increasingly causing severe hardship and damage in local communities around the world. This is becoming more visible in loss figures, where over USD 1 billion of insured losses stem from occurrences that happen regularly and frequently.
Mitigating the risk and the role of insurance
The call to action is clear: we must take urgent measures to mitigate climate risk and adapt to a world of more weather extremes. Unlike hurricanes, earthquakes and other primary perils – which are geographically limited to certain areas – climate-related secondary perils can affect anyone. We must therefore urgently give more attention to them and make them a priority.
Re/insurers have an important role to play to further strengthen global resilience. This requires raising more awareness of the risk posed by extreme weather – and how that translates to losses on the ground. As an industry, our data analysis has already given us a partial picture.
But we need to be more active in calling for greater action and understanding, so that we can make weather-related secondary perils as insurable as peak perils like hurricanes. While advocating insurance as a key risk mitigation measure is critical, it is important to bear in mind that the risk from natural disasters itself is not static but constantly evolving.
Government agencies, insurers and insurance associations should therefore work more closely together, for example by raising risk awareness, putting in place more comprehensive claims monitoring and sharing that information with all stakeholders where legally permissible.
Re/insurers, meanwhile, should support open-source loss modelling frameworks for risk assessments closer to emerging local trends. By spreading insurable risk on more shoulders, governments and the insurance industry can create more efficiencies and strengthen resilience in the face of a global risk pattern. Reinsurers can play an orchestrating role.
As Earth's warming trend accelerates, the number of communities grappling with the damaging effects of climate change is increasing. The time to act is now.