Persistent patterns responsible for extreme weather-related losses: Munich Re

Some of the most damaging and costliest natural catastrophes over the last few years have been caused by unwavering, or persistent, extreme weather conditions, according to research by reinsurance giant Munich Re.

Munich Re’s latest “Topics Geo 2014” publication, “Risk aggravated by persistent extreme weather conditions,” looks at the global financial and social impact of stationary weather trends and how they appear to be causing billions of dollars of damage and ultimately insurance industry losses.

Peter Höppe, Head of Geo Risks Research at Munich Re provided some details into the believed cause; “The persistent weather patterns are caused by uncommonly stationary waves of the jet stream, a band of strong, high-altitude winds, that separate the cold Arctic and warm subtropical air masses.”

The report attributes the persisting weather patterns for various severe weather events throughout 2014, including the huge snow storms in Japan, widespread flooding in Great Britain and the prolonged cold winter in the U.S.

The reinsurance firm estimates that these three events alone caused total losses of $11.4 billion, of which roughly $6.5 billion was insured.

Already this highlights a gap in insured and economic losses, emphasised by the lack of insurance penetration globally, even for the more developed countries.

A bridge that Great Britain will hope to narrow at least for flooding, following the launch of reinsurance facility Flood Re, which is expected sometime in the summer of 2015.

But while higher levels of insurance penetration can go some way to ensuring a faster economical and social recovery post-disaster, it does little in the actual prevention of such catastrophes, events which researchers at Munich Re feel confident are exacerbated by global warming’s impact in the Arctic.

The study states that stationary weather patterns intensified by global warming are causing harsher episodes of drought and flooding, and that this is more likely to happen in the future as climate change continues.

While there is no absolute concrete proof of climate change/global warming’s effect on persistent weather patterns, Höppe advised that concerned communities are partaking in intense discussions on the issue, adding; “It is not yet possible to produce casual proof, but there is a logical chain of indices.”

Despite a shared view that the severity and frequency of natural catastrophes are on the rise, overall losses for 2014 amounted to $110 billion, some $80 billion below the ten-year average.

“It would be wrong to conclude any trend reversal based on the last few years. The loss trend of the past decades is clearly upwards, primarily driven by the rise in exposed values,” explained Torsten Jeworrek, Reinsurance Chief Executive Officer (CEO) at Munich Re.

For many industries climate change’s impact is something people are eager to understand better, and it’s of particular importance to the insurance and reinsurance world.

The better understanding of a peril and it’s cause, be it climate change or not, helps to ensure adequate pricing, aid with underwriting and risk modelling, and ultimately better the offerings and reach of insurers and reinsurers globally.

It also helps to make insurance, reinsurance and other risk transfer products (including insurance-linked securities(ILS) and catastrophe bonds) more widely accepted, helping to increase penetration and ultimately aid recovery from these severe weather events.