The recent years have gotten us used to news about climate change-related extreme weather events. Unfortunately, this year is no different – only its first half saw some of the worst destructions of assets to date.
Natural disasters brought $65–$72bn in total losses in the first half of 2022, according to data by reinsurers Munich Re and Swiss Re. Close to half of this damage hit uninsured assets. The vast majority of these losses were induced by extreme weather events, which are often linked to climate change. According to Martin Bertogg, Head of Catastrophe Perils at Swiss Re, this confirms the trend of such "secondary perils [...] driving insured losses in every corner of the world."
Floods in Australia were by far the costliest single disaster for the finance industry this year, accounting for insured losses of over $3.6bn so far. In the US, the first half of 2022 saw nine climate-induced weather events with losses exceeding $1bn each. Apart from one drought, there were eight severe storms, of which a single tornado-wielding thunderstorm in April wiped out assets worth more than $3bn.
The cost of this year’s floods across SE Queensland and northern New South Wales is $5.28 billion, making it Australia’s second costliest natural disaster ever. Insurers have received around 233,100 claims across both states.”
Hurricane-grade weather battered North-Western Europe in the winter. Ireland, England, Belgium, the Netherlands, and northern parts of Germany were among the hardest hit. The storms resulted in losses of $5.2bn.
But it is not just the developed world that is suffering from the devastating power of events that are highly related to the progressing change of the Earth’s climate. Major floods affected South Africa, India, Bangladesh, and China. Moreover, crop-killing droughts hit Brazil. A multitude of other climatological and hydrological events left their mark on regions across Latin America and Asia-Pacific.
It is, in fact, in the lower and middle-income countries where the consequences – including the financial ones – are proportionally most dire. The funding requested in UN humanitarian appeals related to weather catastrophes like floods or droughts is now eight times higher than just two decades ago, as revealed in a recent brief by Tracy Carty and Lyndsay Walsh of Oxfam. Average annual extreme weather-related humanitarian funding appeals for 2000-2002 rose from $1.6 bn to an average $15.5bn in 2019-2021 – an 819 percent increase.
It isn’t over yet
While losses from the first half of 2022 appear somewhat dwarfed when compared to the same period of 2021 (down by 40 percent), make no mistake: 2022’s tab is still open.
The tropical storm season only began in June and is supposed to yield high activity in the North Atlantic. Reinsurers expect almost 20 named tropical storms, 8 hurricanes and 4 severe-scale ones on top.
In Europe, several extreme heatwaves in July and August exacerbated water scarcity and wildfires, especially in Italy, Spain and Portugal. (Even in the UK, for the first time on record, temperatures exceeded 40 °C.)
What is at stake?
Ernst Rauch, Munich Re's Chief Climate Scientist, says that while these may all be individual events "taken together (...) the powerful influence of climate change is becoming ever more evident." And while climate change is one of the greatest risk factors faced by our society, a staggering 75 percent of all natural catastrophe losses still turn out to be uninsured. Even the UK showed an underinsurance rate of about 33 percent in the fifteen years up to 2017.
The financial sector is becoming increasingly wary of such risks. For example, the Commonwealth Bank of Australia recently admitted that around $21bn (AUD 31.2 bn) in home loans alone is "vulnerable to natural catastrophes, such as floods, cyclones or fires" and thus in "acute physical risk".
What we can do
Understanding risks and using reliable data solutions can help organisations build resilience in high-risk areas and avoid similar losses. The benefits will far outweigh the investment required for pre-emptive measures.
Our award-winning platform, Spectra, combines the latest climate models with up-to-date real-world data on extreme weather events to deliver location-specific risk ratings and climate-adjusted loss estimates well into the future.
Get in touch with our team and discover how you can leverage Spectra to assess the potential threats to your assets and portfolios posed by extreme weather and progressing climate change.
- https://assets.lloyds.com/assets/pdf-lloyds-underinsurance-report-final/1/pdf-lloyds-underinsurance-report-final.pdf (p. 11)