5.1.2.e

Insurance and Other Financial Services

Rising cost of weather related disasters around the world

Today the major impact of weather on financial services is caused by extreme events. Some countries are more vulnerable than because of their geographical location, their population distribution, or their national wealth. In developing countries, there may be high mortality from extreme weather but relatively small costs to the financial sector because of low levels of insurance. In developed nations, the loss of life may be much less but there may be huge costs to the insurance industry.

Of the 40 worst catastrophes that happened around the world, between 1970 and 1999, in terms of insurance losses and fatalities:

• Only six were not weather related.
• Nineteen of the weather-related catastrophes affected the United States.
• Twenty-eight were related to windstorm (tropical and temperate latitudes).

Of the 40 worst events between 1970 and 1999 in terms of fatalities:

• Only 16 were weather related, of which 13 occurred in Asia.

Table 1. Global Billion-dollar and larger insurance losses, 1970-1999, as of December 2000 Figures are adjusted for inflation (1999 values). Source: IPCC

Year	Event	Area	Insured Losses (US$M)	Economic losses (US$M)	Ratio of Insured / Economic Losses
1992	Hurricane Andrew	USA	20,800	36,600	0.57
1994	Northridge earthquake	USA	17,600	50,600	0.35
1991	Typhoon Mireille	Japan	6,900	12,700	0.54
1990	Winterstorm Daria	Europe	6,800	9,100	0.75
1989	Hurricane Hugo	Caribbean, USA	6,300	12,700	0.50
1999	Winterstorm Lothar	Europe	5,900	11,100	0.53
1987	Winterstorm	Western Europe	4,700	5,600	0.84
1998	Hurricane Georges	Caribbean, USA	3,500	10,300	0.34
1995	Earthquake	Japan	3,400	112,100	0.03
1999	Typhoon Bart	Japan	3,400	5,000	0.60
1990	Winterstorm Vivian	Europe	2,800	4,400	0.64
1999	Winterstorm Martin	Europe	2,500	4,100	0.61
1995	Hurricane Opal	USA	2,400	3,400	0.71
1999	Hurricane Floyd	USA	2,200	4,500	0.49
1983	Hurricane Alicia	USA	2,200	3,500	0.63
1991	Oakland fire	USA	2,200	2,600	0.85
1993	Blizzard	USA	2,000	5,800	0.34
1992	Hurricane Iniki	Hawaii	2,000	3,700	0.54
1999	Winterstorm Anatol	Europe	2,000	2,300	0.87
1996	Hurricane Fran	USA	1,800	5,700	0.32
1990	Winterstorm Wiebke	Europe	1,800	3,000	0.60
1990	Winterstorm Herta	Europe	1,800	2,600	0.69
1995	Hurricane Luis	Caribbean	1,700	2,800	0.61
1999	Tornadoes	USA	1,485	2,000	0.74
1998	Hailstorm, tempest	USA	1,400	1,900	0.74
1995	Hailstorm	USA	1,300	2,300	0.57
1993	Floods	USA	1,200	18,600	0.06
1998	Ice storm	Canada, USA	1,200	2,600	0.46
1999	Hailstorm	Australia	1,100	1,500	0.67
1998	Floods	China	1,050	30,900	0.03

Table 1 includes a list of natural disasters causing billion-dollar losses.

ACTIVITY 1

a) Count the number of events in the "Events" column. What is the total?

b) Calculate the percentage that affected Europe, North America, and Asia.

1. What is the only kind of disaster that is not weather related?
2. Describe the difference between insured losses and economic losses. Why are the economic losses higher?

In recent decades, economic and insured losses related to weather extremes have increased rapidly (see Figure 1).

Two possible principle causes of recent trends in climate variables are:

1. Changes in the natural modes of variability of the global climate system. An example is the Southern Oscillation, with its two characteristic modes of El Niño and La Niña. In the 1980s and 1990s there were more frequent and longer El Niño events. The longest El Niño of the 20th century lasted from 1991 to 1995. The most intense El Niño of the twentieth century occurred soon after, in 1997-1998.

2. Anthropogenic (human-caused) global warming.. You could expect that global warming would lead to more high-temperature extremes and fewer days with very low temperatures. There is evidence that the latter trend already is occurring. (See Global Temperature Trends).

Figure 1. The costs of catastrophic events in recent decades. (Source. IPCC )



3. Calculate the ratio of 1990:1950 weather related events. How many times greater is the 1990 frequency compared with the 1950 frequency?
4. Calculate the same ratio for the non-weather related events. How many times greater is the frequency of non-weather related events? Is it as great as the weather related increase?
5. How much have the economic losses increased by?
6. What has been the increase in insured losses since the 1960s?
7. Look at the economic trend and insured trend curves on the graph. Describe each trend. Why do you think there is an increasing difference between these two trends?

•   Activity 1