Global reinsurer Munich Re released its analysis of natural disasters in the first half of 2022. While Australia saw the largest single event, the US was once again the country with the highest weather-related losses, with extreme weather driven by climatic change.
Slightly more than half of weather related events are insured
In the first half of 2022, natural disasters caused overall losses of $65 billion, with only just more than half of those insured. Extreme multi-day rainfall and severe flooding in Australia constituted the main loss burden for the insurance industry of at least $3.7 billion. The US, meanwhile, accounted for almost half of overall losses in the first six months of 2022 at $28 billion, and nearly two-thirds of insured losses, with a figure of $19 billion.
There are several natural disasters that can impact the reinsurance industry. Geophysical events like earthquakes, tsunami or volcanic activity for example. The greatest humanitarian tragedy was caused by a powerful earthquake in Afghanistan. Approximately 1,200 people died when the quake, with a magnitude of 5.9, devastated the eastern part of the country.
Other events can be meteorological (storms and tornados) even hydrological (such as floods and mass movements) but it is climatological events, such as extreme temperatures, droughts and wildfires, that have generated the most expensive natural disasters so far this year.
Extreme heat can have economic consequences beyond insurance
In Europe, extreme heat and arid conditions in early summer led to water scarcity and wildfires, especially in Italy, Spain and Portugal. At this point it is difficult to put an exact figure on insurable losses from heat and drought as their effects, such as production losses in industry due to a lack of cooling water, take a while to emerge. Related losses, whether from productivity, lack of sales, cannot be directly attributed through insurance metrics.
In many parts of Europe, anthropogenic climate change has already resulted in annual average temperatures rising by more than 1.5°C compared with when systematic weather records began towards the end of the 19th century – above the average global warming of 1.2°C.
Torsten Jeworrek, member of the Board of Management at Munich Re said: “The natural disaster picture for the first half of 2022 is dominated by weather-related catastrophes. Extreme tornadoes in the US caused billions in damage, parts of eastern coastal Australia were submerged by floods, and southern Europe struggled with extreme heat, wildfires and drought.”
Insurers need to adapt to changing risk patterns
The recently published IPCC report warned of the need for insurers to adapt their loss models to adequately assess the changing risk. Loss prevention plays a fundamental role in mitigating the economic effects of climate change. Jeworrek added: “It is … extremely worrying that insurance penetration in developing and emerging nations is stagnating at well below 10%, and that even in industrial countries there is much room for improvement.”
Ernst Rauch, Chief Climate Scientist at Munich Re, and head of the Climate Solutions Unit summed up the year’s events so far, saying, “They may all be individual events with different causes, but taken together, one thing is becoming extremely clear: the powerful influence of climate change is becoming ever more evident! And the consequences for people across the world are becoming ever more palpable.”