Munich Re estimates of climaterelated losses

Munich Re has been compiling statistics on natural disasters for many years because they illustrate the need for risk management. Their definition of what are ''major natural catastrophes'' follows the criteria laid down by the United Nations: the affected region's ability to help itself is distinctly overtaxed, interregional or international assistance is necessary, thousands are killed, hundreds ofthousands are made homeless, and there are substantial economic losses and/or considerable insured losses. In this section we exclude those disasters like earthquakes and volcanoes, which are not weather related. In fact, we shall focus on the number of incidents, rather than on insurance claims, because the latter are a rather variable proportion of the total losses. Even the total losses depend on the vulnerability and wealth of the areas impacted, so they too are rather variable.

Table 13.5 shows great weather-related disasters for the period 1950-2005. The numbers rose until the 1990s, but now appear to have reversed somewhat. There has been a global increase in the cost of weather disasters, paralleling the UK picture. Of course, there are many reasons for this trend, including increased volumes of assets located in more hazardous areas. The insured losses show a very strong upward trend, which reflects the fact that as economies develop, the penetration of insurance also grows.

The number of flood events has fallen back, after very high levels in the 1980s and 1990s, but the costs have risen enormously, both in pure economic terms and in insured value, reflecting the incidence of flooding in wealthier

Table 13.5. Great weather-related disasters, 1950-2005

1950s

1960s

1970s

1980s

1990s

1996-2005

Number

15

16

29

44

74

44

Economic loss (billion dollars)

47

63

89

142

477

480

Insured loss (billion dollars)

2

7

14

26

110

175

Source: Munich Re; monetary data in constant 2005 values.

Source: Munich Re; monetary data in constant 2005 values.

Table 13.6. Great flood disasters, 1950-2005

1950s

1960s

1970s

1980s

1990s

1996-2005

Number

6

6

8

18

26

12

Economic loss (billion dollars)

34

24

22

31

254

127

Insured loss (billion dollars)

1

2

9

8

Source: Munich Re; monetary

data in constant 2005 values.

Table 13.7. Great windstorm

disasters, 1950-

2005

1950s

1960s

1970s

1980s

1990s

1996-2005

Number

8

10

19

21

42

28

Economic loss (billion dollars)

12

39

56

59

201

328

Insured loss (billion dollars)

1

6

13

23

90

161

Source: Munich Re; monetary data in constant 2005 values.

Source: Munich Re; monetary data in constant 2005 values.

countries like the United Kingdom and Germany (Table 13.6). The peak in the 1990s reflects the fact that some major events happened in the United States, where there are very large exposures; e.g., the 1993 Mississippi floods. The insured losses were relatively low because insurers (apart from the United Kingdom) do not generally cover this risk.

The number of windstorm events has trended strongly upward, with a peak in the 1990s (Table 13.7). The costs have risen very sharply, mainly due to hurricanes and typhoons.

13.6.1 Parallels with the United Kingdom

The increase in global economic losses from weather recorded by Munich Re is broadly consistent with the ABI data for the United Kingdom only. (It is better to take the economic cost, rather than the insured cost, for the global losses, because practice varies so widely in the use of insurance as a compensation vehicle.) Between the 1980s and the 10-year period 1996-2005, the cost in constant currency for global economic losses rose from US$142 billion to US$480 billion, an annual rate of increase of 8% over 16 years. During the same period in the United Kingdom, the annual increase was about 5.5% in the constant-value cost of''weather-related'' claims; i.e., excluding subsidence. Given the relatively less dynamic nature of the United Kingdom's economy, and the absence of any major UK storms since 1990, this figure is consistent with the global trend. It is interesting, too, that the global figures exhibited a strong uplift in flood damage over that period, as has happened in the United Kingdom. The Munich Re statistics are corroborated by Swiss Re (see, e.g., Swiss Re, 2006a). This observation suggests that the UK experience is part of a general pattern.

Powerful non-climatic factors are driving up the potential for disasters, and magnifying the costs of them when they occur. Section 13.7 considers this multi-factor trend to see whether a climatic element can be distinguished.

Continue reading here: Loss trends and projections

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