Heavy weather

Heavy weather

Industry estimates of losses from last year’s natural disasters vary, but there’s solid agreement that climate change inaction will only make things worse

By Bernice Han

Floods, storms, wildfires, hurricanes and other natural catastrophes combined to inflict yet another devastating year on insurers, in terms of economic and insured damages, prompting the insurance industry to again warn of the dire consequences of inaction on the climate front.

From the worst floods yet experienced in Germany to La Nina-induced record rainfall in eastern Australia, raging wildfires in California and the deep freeze in Texas, the manner in which many of the disasters struck adds to growing evidence of weather patterns turning more erratic and unpredictable, the result of accelerating climate change.

While Munich Re, Aon and Swiss Re differ in their overall economic loss estimates of natural catastrophes for last year – $US280 billion, $US343 billion and $US250 billion respectively – in one area they were united: the climate connection.

Trent Thomson, Swiss Re’s Australia & New Zealand Head Property & Casualty, tells Insurance News climate change continues to be one of the “most pervasive threats” facing the world.

“At Swiss Re, we see first-hand how the effects of climate change manifest in natural catastrophes, especially when it comes to secondary perils, such as floods, drought or bushfire,” he said.

“To enable affordable re/insurance in an environment where catastrophe losses are steeply on the rise, and for a nation which is vulnerable to the impacts of climate change, it is even more vital to build our future resilience through a combination of mitigation, smart planning, and financial risk management.”

Aon’s meteorologist and Head of Catastrophe Insight Steve Bowen agrees, saying the path forward for organisations and governments must include sustainability and mitigation efforts to navigate and minimise risk as new forms of disaster-related volatility emerge.

“Many global communities are exposed to increasingly volatile weather conditions that are in part enhanced by the growing effects of climate change,” Mr Bowen said.

“This includes record-setting episodes of extreme temperatures, rainfall and flooding, droughts and wildfires, rapidly intensifying tropical cyclones and late season severe convective storms.”

Most expensive event: hurricane Ida smashed into Louisiana in August last year

Aon says its estimates show the economic cost solely resulting from weather and climate-related events – defined as being caused by “atmospheric-driven phenomena” – totalled $US329 billion last year. This makes 2021 the third-costliest year on record for weather and climate-linked disasters after adjusting for inflation, behind 2017 and 2005.

The $US329 billion figure is 45% higher than the 21st century average and 52% above the median, according to the global broker’s annual Weather, Climate and Catastrophe Insight report.

Aon says the most notable takeaway from the economic costs of natural disasters is the frequency of “large-scale and highly impactful” events. Four individual events stand out for topping the $US20 billion economic loss threshold: hurricane Ida in the US, the July floods in Europe, the summer seasonal flooding in China and the February polar vortex in North America.

Aon says the four disasters mark just the second time on record in which a quartet of loss events with damage of at least $US20 billion each has been registered in a calendar year, with all four linked to weather or climate.

The polar vortex was the costliest winter weather event on record for insurers, with $US15 billion in losses to property and agriculture.

The vortex occurred in February last year when an area of low pressure and cold air surrounding the North Pole descended into North America. It plunged the usually mild winters experienced in Texas into a “deep freeze”, resulting in nearly a full week of Arcticlevel temperatures to an area extending as far south as the US-Mexico border.

“The February 2021 polar vortex event brought renewed focus on what potential role climate change may have on various weather phenomena,” Aon says, pointing out that the winter weather peril has historically resulted in a one or two billion-dollar economic or insured loss events on an annual basis.

Of the $US343 billion in direct economic losses and physical damage from natural disasters last year, Aon estimates about $US130 billion was insured. Hurricane Ida ranked as the costliest event for insurers, at $US36 billion, followed by the polar vortex event.

Under water: floods caused devastation across Europe, including Germany, in July

Turning to the Asia Pacific region, Aon says the floods that inundated parts of eastern Australia in the summer resulted in insured losses of about $US700 million, making it among the top-five most significant disasters in the region.

Munich Re Chief Climate and Geo-scientist Ernst Rauch says the reinsurer’s 2021 disaster statistics are “striking” because some of the extreme weather events are of the kind that are likely to become more frequent or more severe as a result of climate change.

“Among these are severe storms in the US, including in the winter half-year, or heavy rain followed by floods in Europe,” he said.

“Even though events cannot automatically be attributed to climate change, analysis of the changes over decades provides plausible indications of a connection with the warming of the atmosphere and the oceans.”

The reinsurance giant says the insurance industry absorbed about $US120 billion in losses last year from natural disasters, making it the second-costliest for the sector alongside 2005 and 2011.

Its provisional data ranks hurricane Ida as the top loss event for insurers at $US36 billion, followed by the February deep freeze winter storm at $US15 billion and the floods in Germany and Europe at $US13 billion.

Swiss Re says insured losses from natural catastrophes last year reached $US105 billion, the fourth-highest since 1970 when it started tracking the financial impact of disasters.

Its preliminary figures place Ida as the top insured loss event at $US30-32 billion including floods in New York.

The July floods in Germany and Europe led to insured losses of up to $US13 billion and an overall economic hit in excess of $US40 billion.

And just as in Australia, the Swiss reinsurer called for governments to be prepared for the future by investing more in stronger infrastructure.

“The impact of the natural disasters we have experienced [last] year once again highlights the need for significant investment in strengthening critical infrastructure to mitigate the impact of extreme weather conditions,” Swiss Re Group Chief Economist Jerome Jean Haegeli said.

"Partnering with the public sector, the insurance industry is critical for strengthening society's resilience to climate risks, by investing in and underwriting sustainable infrastructure."