Real Risk

[

] 31

N TERMS OF

natural catastrophes, 2005 broke all negative records.

Natural catastrophes have never been so expensive, either for the

world’s economies or for the insurance industry. It was also one

of the deadliest years of recent decades. In the North Atlantic the

most active tropical cyclone season since records began in 1851 is

costing the private insurance industry more than USD80 billion,

with Hurricane Katrina being the most damaging windstorm of all

time. The increase in losses from natural catastrophes over the past

few decades is largely due to a series of socio-economic factors,

including the growing concentration of people and economic activ-

ity in cities. The cities themselves are becoming more vulnerable,

and are often located in highly exposed regions. And as events have

repeatedly shown, the susceptibility of buildings and infrastructure

is increasing rather than decreasing – in spite of modern building

codes and technological development.

However, these changes in exposure and vulnerability do not suffi-

ciently account for the increase in natural catastrophe losses in its

entirety. There is mounting evidence that the frequency and inten-

sity of weather-related natural catastrophes are increasingly being

influenced by global environmental changes, and above all by climate

change. Between 1950 and 2005 there has been a general trend

towards ever higher losses from ‘great natural catastrophes’ world-

wide. This has been duly analysed by Munich Re’s Geo Risk Research

division, giving a reinsurer’s perspective on how climate cycles and

global warming affect risk evaluation.

2005: the trend toward increasing losses continues

About 650 loss events occurred around the world in 2005. The

number of events was in line with the average of the past ten years.

The monetary and human consequences, however, were extraordi-

nary, since 2005 was the costliest natural catastrophe year ever for

the insurance industry and one of the three deadliest years in the

last quarter of a century.

Six natural hazard events complied with the definition of ‘great

natural catastrophes’ in 2005. They accounted for more than 91,000

deaths out of a total of 100,000. They generated overall losses of

USD170 billion (from a total of USD212 billion) and insured losses

of more than USD82 billion (from a total of USD94 billion):

• Floods, India (August)

• Hurricane Katrina, USA (August)

• Hurricane Rita, USA (September)

• Hurricane Stan, Middle America (October)

• Earthquake in Pakistan and India (October)

• Hurricane Wilma, Mexico, USA, Caribbean (October).

A detailed analysis of this time series of losses demonstrates that five

out of every six great natural catastrophes throughout the world are

due to extreme weather events, as are almost half of the catastrophe

victims and three-quarters of the economic losses. They account for

approximately 90 per cent of insured losses. While humankind

cannot influence earthquakes or volcanic eruptions, anthropogenic

climate change is exerting an increasing influence on all kinds of

weather-related natural catastrophes.

Natural catastrophes are increasing in size and frequency, and

there are several key reasons for this:

• Population growth

• Rising standard of living

• Concentration of population and economies in conurbations

• Settlement and industrialization of heavily exposed regions

• Vulnerability of modern societies and technologies

• Increasing insurance penetration

• Changes in environmental conditions and climate change.

Natural catastrophes: are increasing

intensity and costs a long-term trend?

Ernst Rauch, Head of Department Windstorm/Weather/Climate Risks, Munich Reinsurance Company

Photo: American Re, Princeton

Wind damage to a commercial building:

Hurricane Wilma, Fort Lauderdale, Florida, October 2005

In line with definitions used by the United Nations, natural

catastrophes are considered ‘great’ if the affected regions’ ability to

help themselves is clearly overstretched and supraregional or

international assistance is required. As a rule, this is the case when

there are thousands of fatalities, when hundreds of thousands of

people are made homeless, or when the overall losses – depending on

the economic circumstances of the country concerned – and/or

insured losses reach exceptional orders of magnitude.

Great natural catastrophes