UN report highlights significant cost of weather-related disasters

A study conducted by the United Nation’s (UN) highlights the significant cost that weather-related disasters cause across the globe, and with the expectation of more frequent and more severe events in the future, an urgent need to improve disaster resilience and mitigation is again brought to light.

The report highlights staggering sums in the trillions of dollars for the economic losses attributable to weather and climate related disasters in the last 20 years, again making plain the insurance protection gap and the role that reinsurance and insurance-linked securities (ILS) can play.

Over the last two decades a staggering 90% of major disasters around the globe have been caused by a total 6,457 weather-related events, ranging from drought episodes to record levels of rainfall and ensuing flooding, to severe storms and heat waves.

During this period the U.S. has been impacted by 472 natural disasters, China 441, India 228, the Philippines 274, and Indonesia 163, further supporting the well-documented truth of the Asia-Pacific being home to some of the vulnerable regions in the world to the threat of adverse weather events, but also underlining the need for greater prevention and resilience efforts in developed territories, like the states.

In its report, conducted by the UN Office for Disaster Risk Reduction (UNISDR) and the Belgian domiciled Centre for Research on the Epidemiology of Disasters (CRED), it claims that since 1995 606,000 people have lost their lives and a further 4.1 billion have been either injured, left homeless or in need of some form of emergency assistance due to weather-related disasters.

Adding to this, notes the report, is the financial and economic costs associated with weather-related disasters, which even in more mature, developed countries that boast a sophisticated and well-capitalised risk transfer landscape, are substantial, and have the potential to rise over time.

The UN notes that since 1995, recorded weather-related disasters have incurred economic losses of $1.891 trillion, but adds that this only accounts for 71% of “all losses attributed to natural hazards.”

Owing to a lack of data in some areas and for some perils, the report stresses that just 35% of records detail economic loss information; meaning that the UN feels this figure is significantly higher.

In fact, the UNISDR estimates the actual economic disaster loss figure is somewhere between $250 billion and $300 billion per year, highlighting the huge protection gap that can be closed via the use of risk transfer structures and solutions, encompassing the power of the insurance, reinsurance, and insurance-linked securities (ILS) industry.

“Weather and climate are major drivers of disaster risk and this report demonstrates that the world is paying a high price in lives lost. Economic losses are a major development challenge for many least developed countries battling climate change and poverty,” said Margareta Wahlström, head of the UNISDR.

The report explains that for recorded losses, which remember are sparse and not conclusive, in the Americas accounted for 46% of the total economic losses from 1994-2015, followed by Asia at 37%.

What this shows is that while the U.S. is home to a developed and mature insurance and reinsurance industry, which is highly capable and suited to protecting against natural disasters, particularly with the added inclusion of ILS solutions, higher valued assets and a greater concentration of these assets can result in very high economic losses, regardless of insurance penetration levels.

And for Asia, where insurance and reinsurance take-up levels are some of the lowest in the world, a reality that becomes potentially crippling owing to the region’s extremely high vulnerability to adverse weather events, it shows the rising costs of inadequate preparedness, awareness, financial stability and mitigation against weather-related disasters.

“For now, there is a need to reduce existing levels of risk and avoid creating new risk by ensuring that public and private investments are risk-informed and do not increase the exposure of people and economic assets to natural hazards on flood plains, vulnerable low-lying coastlines or other locations unsuited for human settlement,” notes Wahlström.

The economic cost of weather-related disasters globally is staggering, but they would be far higher had the insurance, reinsurance and wider risk transfer markets not developed solutions, organisations and frameworks, public and private, to address the issue.

But clearly, as highlighted by the report, more needs to be done in developed, richer regions like the U.S., just as it does in Asia, parts of Latin America and other emerging, poorer, and vulnerable regions of the planet.

This is where the global risk transfer landscape can play a vital role in building disaster resilience and mitigation efforts for poorer, underdeveloped countries, by raising awareness levels and innovating solutions that help protect against weather events and build economic sustainability post-event.

In developed and emerging markets and economies, protection against weather-related disasters through the use of risk transfer can greatly reduce economic losses post-event, alleviating the burden from governments and ultimately tax-payers, and serving to build resilience, awareness and preparedness measures.

Head of CRED, Professor Debarati Guha-Sapir, said; “Climate change, climate variability and weather events are a threat to achieving the Sustainable Development Goals’ overall target of eliminating poverty. We need to reduce greenhouse gas emissions and tackle other risk drivers such as unplanned urban development, environmental degradation and gaps in early warnings.

“This all requires ensuring people are risk informed and strengthening institutions which manage disaster risk.”

Read our series of articles focused on the insurance protection gap – under-insurance in emerging and developing economies, the gap between economic and insurance losses, and transferring risk from public sector to private – the opportunity that is on every reinsurance CEO’s lips and that presents the largest opportunity to put excess risk transfer capital to use, requiring both traditional and capital markets support.