Plan now for future weather and climate related natural disasters, says IPCC report

The United Nations climate experts have published a lengthy report looking at mechanisms and methods to help make societies more resilient to natural disasters and severe weather events. The report from the Intergovernmental Panel on Climate Change discusses the billions of dollars of damages caused by extreme weather and climate events in recent years, whether a changing climate is adding to the toll, how social and environmental factors interact with weather and climate to create disasters and what steps can be taken to mitigate risks and help protect societies from the increasing weather extremes affecting the planet.

The full report, called ‘Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation (SREX)’, which you can access via this page on the IPCC website, is a massive 592 pages long and contains:

Detailed evidence underlying the findings highlighted in the Summary for Policymakers, complete with graphics, full reference details, report glossary and index. In addition the chapters provide comprehensive detail on the concepts and determinants of disaster risk, an assessment of past and future changes in climate extremes and their impacts at global and regional scales, and a discussion of local to international level approaches for managing weather-related risks. Case studies are used to provide valuable insights into best practices and experiences.

This really is the most comprehensive dive into the issue of climate and weather risks, their impacts on societies and the methods available and required to be used to mitigate, manage and recover from these disasters. The report has been put together by a collaboration of hundreds of scientists from around the world and has taken two years to complete. By integrating the world’s expertise in climate science, disaster risk management and adaptation the report manages to offer real conclusions on the best ways to reduce and manage the risks of extreme weather and disasters in a changing climate.

Here are some key, specific findings of the report which matter to our markets:

Changing extreme events

• Observations since 1950 show changes in some extreme events, particularly daily temperature extremes, and heat waves.
• It is likely that the frequency of heavy precipitation will increase in the 21st century over many regions.
• It is virtually certain that increases in the frequency of warm daily temperature extremes and decreases in cold extremes will occur throughout the 21st century on a global scale. It is very likely—90 per cent to 100 per cent probability—that heat waves will increase in length, frequency, and/or intensity over most land areas.
• It is likely that the average maximum wind speed of tropical cyclones (also known as typhoons or hurricanes) will increase throughout the coming century, although possibly not in every ocean basin. However it is also likely—in other words there is a 66 per cent to 100 per cent probability—that overall there will be either a decrease or essentially no change in the number of tropical cyclones.
• There is evidence, providing a basis for medium confidence, that droughts will intensify over the coming century in southern Europe and the Mediterranean region, central Europe, central North America, Central America and Mexico, northeast Brazil, and southern Africa. Confidence is limited because of definitional issues regarding how to classify and measure a drought, a lack of observational data, and the inability of models to include all the factors that influence droughts.
• It is very likely that average sea level rise will contribute to upward trends in extreme sea levels in extreme coastal high water levels.
• Projected precipitation and temperature changes imply changes in floods, although overall there is low confidence at the global scale regarding climate-driven changes in magnitude or frequency of river related flooding, due to limited evidence and because the causes of regional changes are complex.

Trends in disaster losses

• Economic losses from weather- and climate-related disasters vary from year to year and place to place, but overall have increased (high confidence).
• Total economic losses from natural disasters are higher in developed countries (high confidence).
• Economic losses expressed as a proportion of Gross Domestic Product (GDP) are higher in developing countries (high confidence).
• Deaths from natural disasters occur much more in developing countries (high confidence). From 1970 to 2008 for example, more than 95% of deaths from natural disasters were in developing countries.
• Economic losses from weather- and climate-related disasters have been heavily influenced by increasing exposure of people and economic assets (high confidence).

Managing the risk

• An iterative process involving monitoring, research, evaluation, learning, and innovation can reduce disaster risk in the context of climate extremes (robust evidence, high agreement).
• Many measures for managing current and future risks have additional benefits, such as improving peoples’ livelihoods, conserving biodiversity, and improving human well-being (medium evidence, high agreement).
• Many measures, when implemented effectively, make sense under a range of future climates (medium evidence, high agreement). These “low regrets” measures include systems that warn people of impending disasters; changes in land use planning; sustainable land management; ecosystem management; improvements in health surveillance, water supplies, and drainage systems; development and enforcement of building codes; and better education and awareness.
• Effective risk management generally involves a portfolio of actions, from improving infrastructure to building individual and institutional capacity, in order to reduce risk and respond to disasters (high confidence).
• Post-disaster recovery and reconstruction provide an opportunity for reducing the risks posed by future weather- and climate-related disasters (robust evidence, high agreement). However, short-term measures to protect people from immediate risks can increase future risks, such as improvements in levees encouraging further development in flood plains (medium evidence, high agreement).
• Risk management works best when tailored to local circumstances. Combining local knowledge with additional scientific and technical expertise helps communities reduce their risk and adapt to climate change (robust evidence, high agreement).
• Actions ranging from incremental improvements in governance and technology to more transformational changes are essential for reducing risk from climate extremes (robust evidence, high agreement).

As with any report like this it discusses the role that risk transfer, insurance and reinsurance has to play in both hedging against these severe weather event risks and helping society to recover from disasters. Catastrophe bonds, index-based insurance, microinsurance, index-linked securities and weather risk management tools such as weather derivatives are all cited as tools which can help to pre-finance disasters and transfer weather and disaster risk from one party to another. Specific examples are used and recommended such as governments transferring risk to the capital markets using catastrophe bonds or smaller nations joining together to create a catastrophe pool to diversify the risk and better enable them to buy reinsurance. We would also add here that catastrophe pools could also bundle the risks to then be transferred using catastrophe bonds.

The report notes that given the enormity of the capital markets there is a large potential for alternative or non-traditional financing techniques such as catastrophe bonds, industry loss warranties and sidecars to transfer risk to investors and these are all playing an increasingly important role in financing large loss events.

The importance of risk transfer tools and the size of their markets is likely to grow as the world copes with growing weather risks and growing impacts from severe weather events. It’s down to participants in the market to ensure that these tools can be applied at the national and international level and ‘big thinking’ is needed as to the best way to help governments around the world achieve the risk transfer they are going to require.

Access the full report from the IPCC here.