‘Act now or suffer the consequences’

Reinsurers worry about global climate change inaction after a destructive US hurricane season and massive wildfires

By Bernice Han

The world’s largest reinsurers have highlighted the increasing cost of natural disasters, warning that concerted action to reduce the causes of climate change is becoming increasingly important.

Munich Re says weather-related events in the US in 2020 are a reminder to the rest of the world about the price of inaction on climate change. It says political leaders have struggled to present a united front to reduce greenhouse gas emissions since the Paris Agreement came into force in 2016.

The German reinsurer says natural disaster losses and the severity of perils will worsen if the world continues to shrug off the impacts of climate change. The financial consequences are clear, with global economic losses last year about $US44 billion above the 2019 total.

“Natural catastrophe losses in 2020 were significantly higher than in the previous year,” Munich Re board member Torsten Jeworrek says in a report on last year’s natural disasters. “Record numbers for many relevant hazards are a cause for concern, whether we are talking about the severe hurricane season, major wildfires or the series of thunderstorms in the US.

“Climate change will play an increasing role in all of these hazards. Five years ago in Paris the global community set itself the target of keeping global warming well below 2 degrees Celsius. It is time to act.”

Swiss Re has taken a similar line in its roundup of 2020’s global natural catastrophes, which estimates insured losses at $US76 billion, up 40% from 2019. Including man-made disasters, total insured losses came to $US83 billion, the fifth costliest year for the industry since 1970.

The Zurich-based reinsurer says the losses were driven by a record number of severe convective storms – thunderstorms with tornadoes, floods and hail – and wildfires in the US. These and other secondary peril events in the US, which accounted for 70% of insured losses caused by natural disasters last year, are expected to worsen because of climate change.

“As with COVID-19, climate change will be a huge test of global resilience,” Swiss Re’s Chief Economist Jerome Jean Haegeli says.

“Neither pandemics nor climate change are ‘black swan’ events. But while COVID-19 has an expiry date, climate change does not, and failure to ‘green’ the global economic recovery now will increase costs for society in future.”

The reinsurers’ reports are matched by a separate assessment from Aon, which says 76% of the $US97 billion in insured losses recorded last year came from the US and the 10 leading insured events all took place there. Of the 28 individual disaster events that crossed the billion-dollar claims loss mark, 22 occurred in the US.

Overall economic damages from natural catastrophes were around $US268 billion, Aon says. The US share of economic damages was about 44%.

Apart from a hyperactive hurricane season that rewrote the record books, severe convective storms proved equally damaging. A rare derecho – a line of thunderstorms with widespread damaging winds – generated damage of $US11 billion when it pummeled the Midwest region in August.

Munich Re’s report puts the US share of the $US210 billion in overall economic losses caused by natural perils last year at 45% or $US95 billion, more than any other country.

When measured on an insured loss basis, the world’s largest economy also occupied top spot, accounting for 82% or $US67 billion of the $US82 billion that insurers had to pay out for disaster-related claims.

In terms of insured losses by events, the disasters that make up the five costliest catastrophes for insurers had a US connection too. Hurricane Laura last August topped the list at $US10 billion, followed by the California wildfires ($US7.5 billion) and severe thunderstorms in the Midwest region ($US5 billion).

Hurricanes Isaias and Sally rounded up the top-five list at $US4.1 billion and $US3.5 billion respectively.

In 2019 the US portion of global economic damages from natural disasters was just $US51 billion and $US26 billion for insured losses. That the numbers rose so sharply a year later, to $US95 billion and $US67 billion for economic and insured losses, reflect in part the increasingly adverse impact of climate change on weather events in the country.

The annual Atlantic hurricane season, which starts in June, produced a record 30 storms by the time it officially finished in November, breaking the previous alltime high of 28 in 2005. Of the 30 storms recorded, 13 progressed to “hurricane” status.

“The hyperactive season in the Atlantic was a result of a number of factors,” Munich Re says. “Aside from unusually warm sea surface temperatures, in which climate change already plays a part, La Nina conditions in the equatorial Pacific also acted as a driver.”

La Nina is the cold extreme of the El Nino-Southern Oscillation and creates atmospheric conditions that promote the development of cyclones in the North Atlantic.

The latest hurricane season also set a new landfall record. Twelve hurricanes made landfall last season, three more than the previous record. Overall losses from the hurricane season in North America came to US$43 billion, of which $US26 billion was insured.

The impacts of climate change are not just confined to the US. In the regions north of the Arctic Circle, temperatures rose more than twice as high as the average global increase. And in parts of northern Siberia extensive wildfires raged as temperatures soared above 30 degrees Celsius.

Ernst Rauch, Munich Re’s Chief Climate and Geoscientist, says that even if the weather disasters for one year cannot be directly linked to climate change and a longer period needs to be studied to assess their significance, “these extreme values fit with the expected consequences of a decades-long warming trend for the atmosphere and oceans that is influencing risks”.

“An increasing number of heatwaves and droughts are fuelling wildfires, and severe tropical cyclones and thunderstorms are becoming more frequent. Research shows that events such as last year’s heatwaves in northern Siberia are 600 times more likely to occur than previously.”

Australia also felt the fiery effects of climate change as bushfires in the 2019/20 summer season led to unprecedented losses of $US2 billion. About $US1.6 billion of the losses were insured.

Achim Kassow, another member of the German reinsurer’s board, has urged Canberra and other governments in the Asia Pacific to address the worsening climate risks they face.

“Although the bushfire risk during this time was elevated due to natural climate oscillations, a number of studies suggest that climate change will make bushfires in Australia more likely in the long term,” Mr Kassow says.

“The consequences of climate change remain a serious concern, and this risk is one that governments, the insurance industry and societies across the region need to come together to address and prepare for.”