OVERVIEW
From Typhoon Jebi to Hurricanes Florence and Michael, along with the wildfires in the U.S., Greece and Australia, 2018’s natural disasters have devastated lives and communities. While some economic losses were insured, a majority were not – underscoring a global protection gap of $135 billion.
Beyond the human impact – lives lost and homes destroyed – natural disasters damage key infrastructure, disrupt business and supply chains and threaten agriculture and food production. As catastrophes continue in scope and scale, building long-term solutions across industries, governments and communities to address climate change is increasingly imperative to future resilience.
Weather and catastrophe risk continues to evolve. Steve Bowen, meteorologist and head of Catastrophe Insight at Aon, notes the complex forces at play: “Socioeconomics, shifts in population and exposure into vulnerable locations, plus a changing climate are contributing to more volatile weather patterns.” Such forces are leading to cross-industry discussions to sufficiently handle the need for mitigation and resilience measures.
Greg Lowe, global head of Sustainability and Resilience at Aon, suggests that collaboration is the path forward: “Natural disasters are putting pressure on insurers to look to the future and manage the evolving climate risk.” At the same time, he states, the opportunity is promising: “The industry is uniquely positioned to encourage various groups, from investors to lenders and policymakers, to explore together how to manage and respond to various risks posed by climate change.”
IN DEPTH
Economic losses from natural disasters were down from their 2017 level but still topped $225 billion for the third consecutive year. The lion’s share of that amount resulted from weather-related disasters, with tropical cyclones (inclusive of hurricanes and typhoons) topping the list.
Typhoon Mangkhut across Asia, Typhoon Rumbia in China, Typhoons Jebi and Trami in Japan and Hurricanes Florence and Michael in the U.S. were each multibillion-dollar loss events. Add the impact of wildfire losses in California, multiple drought and flood events around the world – and the impact of weather and climate change on catastrophe losses becomes clear.
At 155 mph, Hurricane Michael’s windspeed as it made landfall in Florida was the fourth-highest on record for a hurricane making landfall on the continental U.S. On the other side of the U.S., wildfires burned 1.82 million acres in California in 2018, a record high for the state already prone to wildfire.
In the case of tropical cyclones, the Institute for Business & Home Safety (IBHS) notes that resilience is possible, with the best methods backed by the scientific community. The right roof construction, for example, can limit wind damage and water entry. Case in point, newer roofs generally fared well in hurricanes Florence and Michael, according to the IBHS.
Well-informed building codes based on the latest scientific findings should be adopted and enforced in hurricane-prone states, the IBHS says. And losses from storm surges or flooding can be reduced by building higher, elsewhere or taking steps to divert the flow of water away from buildings.
As wildfire losses mount, peril is exacerbated by the increased expansion of property and population in areas of wildfire risk, which led to more than $35 billion in global insured losses in 2017 and 2018. Simply put, the more people in vulnerable regions heightens the overall probability of fires occurring, and the more damage caused if they occur. The risk in the Wildland–Urban Interface (WUI) – classified as areas where human-occupied land (homes) are built near or among wildland vegetation that are prone to fires – is worsened by changes in fire behavior and intensity, ongoing weather pattern variability, elongated fire seasons and other aspects of climate change. Dealing with the growing wildfire risk requires a public–private conversation addressing a host of topics, including fire suppression, reconsideration of new construction in high-risk areas and new building-code requirements.
Aligning Corporate And Public Resilience Efforts
As climate risks intensify, businesses are under increasing pressure to understand their exposures and to plan how to best manage them.
The Financial Stability Board’s Task Force on Climate-related Financial Disclosure’s (TFCD) recommendations are intended to do just that: organizations must note physical risks in their annual filings to stimulate building corporate resilience.
Building this resilience to climate risk must be a shared effort. Lowe says: “Corporations do not operate in a vacuum, they depend on suppliers and public assets, like infrastructure.” Such infrastructure is critical to supply chains, he says, but faces its own climate-risk resilience challenges.
“Cooperation between policymakers, urban planners, risk managers, engineers, investors and insurers needs to be much deeper to build the economy-wide resilience we need,” Lowe continues. “Through such a process, new approaches to risk transfer can emerge.”
Such resilience partnerships are beginning to emerge. One example, Lowe notes is Miami Beach’s collaboration with the Urban Land Institute and a group of nine other experts to build resilience to climate risk.
Industry Impact: Agriculture And Climate Risk
Aside from the physical damage that can be accrued during catastrophic events, weather- and climate-related events can deeply impact other industries, such as food and agriculture. “The agriculture sector is particularly vulnerable to natural catastrophes,” says Christopher Coe, head of agriculture at Asia for Aon’s Reinsurance Solutions business.
“The lack of rainfall in Eastern Australia was the worst in recent memory and was estimated to have caused more than $1 billion in economic damage,” Coe says. “In fact, droughts made headlines across the globe in 2018 as central and northern Europe, South America, China, India and the United States also each recorded multibillion-dollar agricultural losses.”
Natural catastrophes will always be a significant risk for agriculture, and climate change is increasing the exposure. Again, public–private cooperation seems critical to addressing the peril.
For example, crop insurance can reduce the volatility associated with weather disasters, and governments around the world are taking various steps to work with insurers to develop solutions that can address the risk, Coe says. “The good news is that the insurance industry can help,” he says, “if governments are prepared to increase their budgets and invest in coverages that are more comprehensive.”
Addressing The Growing Risks
As data continues to grow, shifts in weather and climate patterns highlight increasing severity of weather events. Addressing these risks and reducing their impact requires shared efforts by governments, businesses, academics, climate scientists and others to understand the exposures and how they’re changing. These same stakeholders must then work together to develop methods to mitigate the risks and develop the necessary resilience for businesses, communities and society. “Natural disasters are always going to occur. How well we prepare for those disasters can and will play a key role in finding workable future solutions to lower human and property risk,” Bowen states.
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