178 weather events over 35 years cost the U.S. more than $1 trillion

by Artemis on January 16, 2015

Information provided by the NOAA’s historical, severe weather event database unit, the National Climatic Data Center (NCDC), reveals that since 1980, 178 adverse weather events in the states have incurred costs between them surpassing $1 trillion.

The NCDC data only includes events where the total costs reached or surpassed $1 billion, running from 1980 to 2014, and adjusts for Consumer Price Index (CPI). During the last 12 months the U.S. faced eight weather or climate disasters that saw overall economic losses exceed $1 billion.

Below is an image provided by the NOAA showing the eight $1 billion events that struck the states last year.

Billion dollar weather and climate disasters of 2014

Billion dollar U.S. weather and climate disasters of 2014 - Source: NOAA

A deeper look at the NCDC’s findings reveals that since 1980 tropical cyclones and hurricanes are responsible for the most damage, totaling $539 billion (CPI-adjusted) over 34 events and, also claimed the highest average cost per event spot, at $15.9 billion (CPI-adjusted).

While severe storms have been the most frequent disasters to exceed the $1 billion mark, at 70 events, the peril also has the lowest average cost per event, at $2.2 billion (CPI-adjusted).

Severe storms comes in third on the list of highest costs to the U.S. during the period, at $145 billion (CPI-adjusted), with drought coming in behind tropical cyclones at $202 billion (CPI-adjusted).

The data above shows that despite severe tropical cyclones or hurricanes making landfall just 34 times in 35 years, compared to 70 events in 35 years for severe storms, the impact of a hurricane can be substantially more threatening to property and livelihoods, particularly for those living on the coast.

As climate change appears to signal a rise in the severity and frequency of natural disaster events, the dangers of living in a coastal region become more apparent. Perils like flooding and storm surge that come as a result of a severe storm or cyclone, can sometimes cause greater damage than the storm itself.

Artemis covered the impact of storm surges towards the end of last year, after the NOAA reported they would be issuing warnings for storm surges following hurricanes.

A greater number of events combined with continued development on coastal regions, and increased urbanization, means it’s likely that the economic and insured losses will continue to rise.

The $1 trillion total economic loss, from just 178 events over 35 years, clearly shows the need for insurance, reinsurance and the capital markets participation in providing risk transfer. Contingent sources of disaster risk financing are needed, even in the world’s most advanced economies like the United States. It’s a very large figure and demonstrates exactly why the capital markets were thought to be required to finance catastrophe risk transfer in the first place when the ILS and cat bond market began.

Similarly, as the costs, frequency and severity of natural disasters rise globally, risk pooling facilitators like the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the African Risk Capacity (ARC) demonstrate their importance in emerging economies where the toll from weather and climate disasters will increase exponentially as these countries become increasingly developed.

While there’s little that can be done to stop a cyclone or storm from taking place, the economic and social recovery can be greatly aided via contingent risk transfer financing solutions, such as insurance, reinsurance and catastrophe bonds. There remains important work to do to ensure that as much of the next 35 years impact from natural disasters is covered by re/insurance or risk capital as possible.

Also read:

Catastrophe insured losses 38% below average in 2014: Aon Benfield.

Insured catastrophe losses just $31 billion in 2014: Munich Re.

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john Warwick January 21, 2015 at 4:51 pm

I wholeheartedly concur with your premise that, in light of the $1trn cost of weather-related events in the US during the last few decades, the industry needs to explore the use of re/insurance or risk capital to provide cover to these disasters. Weather index insurance is one emerging response to weather events which demonstrates the insurance industry at it’s most innovative. Drawing on information provided by weather stations around the globe, my business, Excessweather, creates structured policies to pay out an agreed amount should the weather deviate from traditional norms. It can be applied to all forms of weather except hail. Weather is a major driver of corporate profit and loss, but until recently, policyholders have only been offered weather as a standard risk, and faced complex disputes about severity and loss values, which take a long time to resolve. Instead, weather indexed products provide certainty. Paying both premium and claim is a pre-agreed term of the insurance contract, and because the insured event is weather incidence, not the loss, there is no dispute. For CFOs of, say, retailers or other businesses stymied by adverse weather, such certainty is valuable, and becomes an asset on the balance sheet.

The insurance industry can produce these innovative solutions, but we require brokers to step out of their traditional mindset and see the benefits of offering them to their clients. While the client benefits are clear, many brokers are un-used to this type of product and struggle to get traction. Ironically, the insurance industry has the solution to weather catastrophes, but we need our own profession to wise up to the benefits.

John Warwick – CEO Excessweather Ltd.

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