It is time for the world to act on climate change as it will play an increasing role in disaster losses, Torsten Jeworrek of reinsurance company Munich Re warned today.
Munich Re reported today that the global insurance and reinsurance industry faced some $82 billion of natural disaster losses in 2020, up significantly on the prior year’s $57 billion.
But once again, the global insurance and reinsurance industry covered a relatively small proportion of the world’s economic losses from disaster, which came in at $210 billion for the year, according to the reinsurance firm (again, up considerably on 2019’s $166 billion).
The United States accounted for a large percentage of the insurance and reinsurance industry toll for the year, at $67 billion (up significantly on 2019’s $26bn), while on an economic basis the U.S. loss for 2020 was $95 billion (up on 2019’s $51bn).
The fact US natural catastrophe insured losses have risen so much in 2020 suggests further upwards pressure will be felt on primary insurance pricing, with the inevitable effect of helping to prop up reinsurance rate gains for longer, it seems.
In total, some 60% of the disaster toll around the world in 2020 went uninsured.
But, where you live has a significant bearing on how much insurance and reinsurance capital supports your community in its recovery from disasters.
China for example, which saw the largest single loss event of the year due to flooding that cost $17 billion. But only around 2% of the flood loss was covered by insurance and reinsurance, leaving the rest of the economic burden to the state and population.
“Insurance solutions either from the private sector or in the form of public-private partnerships could help to improve resilience, in other words the ability to return to normal life as quickly as possible,” Munich Re explained.
Climate change is playing an increasing role in the growing loss burden faced around the globe, Munich Re believes.
Torsten Jeworrek, Member of the Board of Management, explained, “Natural catastrophe losses in 2020 were significantly higher than in the previous year. 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°C. It is time to act.”
Ernst Rauch, Chief Climate and Geo Scientist at Munich Re, added, “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 this year’s heatwaves in northern Siberia are 600 times more likely to occur than previously.”
The growing economies in Asia are a particular area of concern, given the gap between losses covered by insurance and reinsurance, and those not covered, does not appear to be narrowing at this stage.
In fact, in some regions and for some events, the gap is certainly widening and as losses from weather disasters increase in frequency and magnitude, as is anticipated due to climate change over time, the role of the insurance and reinsurance industry in protecting communities there is only going to become more important.
The world needs to listen when one of the largest re/insurance companies in the world warns that natural disaster losses are likely to escalate on the back of climate change and how it influences certain peril events.
Risk mitigation and transfer will be key moving forwards and the need to roll-out insurance solutions to areas with growing protection gaps is becoming increasingly urgent, as these economies are going to need to transfer risk to help them to manage any growth in exposure.