Recent weather disasters Statistics of natural catastrophes Reasons for increasing losses Risk reduction strategies Conclusions

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1 Geo Risks Research Munich Reinsurance Company Topics Recent weather disasters Statistics of natural catastrophes Reasons for increasing losses Risk reduction strategies Conclusions

2 Weather records and record losses 2005 Pearl River Region/China May - July dead 600 homeless/evacuated 2,800,000 destroyed homes 138,000 total losses 2bn US$ insured losses small Mumbai/India July mm rainfall within 12 hours For comparison: annual precip. in Stockholm: 539 mm London: 754 mm Munich: 985 mm Mumbai: 2170 mm economic losses: 5,000m US$ insured losses: 770m US$ Romania entire country hit by numerous inundations between March and September Northern Alps Aug losses in million US$ economic insured Switzerland Austria Germany Slovenia 4 - Total US Gulf Coast ( Katrina ) Aug losses in billion US$ economic: 125 insured: 60 deaths: >1300 greatest insured loss in history Hurricane Stan/Central America Oct. 2-4 landslides 900 dead and missing >1600 homeless >150,000 total losses 3350m US$ insured losses 100m US$ Hurricane records 2005 so far mean 2004 named tropical storms: hurricanes (>118 km/h): among the Top 10 (since 1851) there were in with regard to intensity (core pressure) Wilma (1., 882 mb) - Rita (4., 897 mb) - Katrina (6., 902 mb) Hurricane Vince (October), most northeasterly hurricane ever observed (near Madeira) First time tropical storm over the Canary Islands (Delta, end of November) First time tropical storm in the South Atlantic (Catarina, September 2004) Hurricane season 2005 estimated total losses: insured losses: 165bn US$ 83bn US$

3 Great Natural Catastrophes (% worldwide) 267 loss events 6% 25% 29% 40% Geological events Earthquakes/tsunamis, volcanic eruptions Weather events Storms Floods Extreme temperatures 1,75 million deaths 7% 2% 36% 55% economic losses: 1700bn. US$* 6% 25% 31% insured losses: 340bn. US$* 5% 11% 5% 38% *in values of Geo Risks Research, Munich Re 79% Great Natural Catastrophes (% worldwide) 267 loss events 6% 25% 29% 40% Geological events Earthquakes/tsunamis, volcanic eruptions events Weather Storms Floods catastrophes Extreme temperatures 1,75 million deaths 7% 2% 36% 55% economic losses: 1700bn. US$* 6% 25% 31% insured losses: 340bn. US$* 5% 11% 5% 38% *in values of Geo Risks Research, Munich Re 79%

4 Great Natural Catastrophes (% worldwide) 15 loss events deaths 6% 25% 29% 40% Geological events Earthquakes, tsunamis, volcanic eruptions events Weather Storms Floods catastrophes Extreme temperatures 7% 2% 36% 55% Kashmir-Earthq. Tsunami Volkswirtschaftliche economic losses: Schäden: 245bn US$* Mrd. US$* 6% 25% 31% Versicherte insured Schäden: losses: 117bn. 340 Mrd. US$* US$* 5% 11% 5% 38% *in values of Geo Risks Research, Munich Re 79% Great Weather Catastrophes Economic and insured losses economic losses (in values vof 2005) insured losses (in values of 2005) trend economic losses trend insured losses bn. US$ NatCatSERVICE, Geo Risks Research, Munich Re

5 Great Flood Catastrophes Economic and insured losses Economic losses Insured losses? 50 Billion US$ (2004 values) 40 30? Year 2006 Geo Risks Research, Munich Re Great Natural Catastrophes Decade comparison Decade Decade Decade Decade Decade last 10 Factor last 10:60ies Number Economic losses insured losses losses in bn. US$ (2005 values) MRNatCatSERVICE 2006 Geo Risk Research, Munich Re

6 Great Flood Catastrophes Decade comparison Decade Decade Decade Decade Decade last 10 Factor last 10:60ies Number Economic losses insured losses losses in bn. US$ (2005 values) MRNatCatSERVICE 2006 Geo Risk Research, Munich Re Why only great natural catastrophes?... because neglecting the development in worldwide communication activity during the past decades extremely biases the statistics of ALL loss events. It may even lead to wrong trends.

7 What are great natural catastrophes? The affected region's ability to help itself is distinctly overtaxed Interregional or international assistance is necessary Thousands are killed Hundreds of thousands are made homeless Substantial economic losses Considerable insured losses 2005 Geo Risks Research, Munich Re, in keeping with United Nations definition criteria Main reasons for increased flood losses Increase in population residents, refugees, tourists Change in environmental conditions loss of retention areas, acceleration of flood waves Changes in land-use exposure to flooding Accumulation of values creation of loss potential Increase in vulnerability high chance of destruction Lack of risk awareness and wrong risk perception Feeling of safety behind the dyke

8 Climate Change The hottest years since 1856 (150 years) All of the 10 hottest years occurred within the last 18 years * Global mean temperature near the ground (source: WMO) Climate Change Global Mean Temperature, Deviations from mean : +0,47 C above the annual mean. Source: CRU, UK (2006), compilation acc. to WMO

9 Climate Change Today 380 ppm x CO 2 -concentrations during the last 400,000 years Source: Vostok (Antarctica) ice cores, World Data Center for Paleoclimatology, NOAA, Boulder, CO, USA Climate Change Model forecast of changes in annual mean air temperatures ( C) (comparison 1980 with 2080) source: IPCC

10 Climate Change Model forecast of changes in annual precipitation (%) (comparison 1980 with 2080) source: IPCC Climate Change Changes in Sea Surface Temperatures NATL = North Atlantic WPAC = West Pazific SPAC = South Pazific EPAC = Esta Pazific NIO = Northern Indic SIO SH = Southern Indic = Oceans of the Southern Hemisphere Source: Webster et al. (2005), Science Vol. 309.

11 Climate Change - Annual number of tropical cyclones formed in the North Atlantic in natural cold and warm cycles Tropical Storms + Hurricanes Hurricanes (Category 1-5) Major Hurricanes (Category 3-5) Annual frequencies of major Hurricanes in warm or cold phases Warm Phase Cold Phase War m Pha se Number of Storms Cold Phase 5 4.1/year 1.3/year 2.6/year 1.5/year Data source: NOAA, re-handling by Munich Re 2005 Climate Change Comparison of average annual U.S. landfall frequencies between different climatic phases Change in average annual number of landfalls between the last cold phase (approx to 1994) and the current warm phase since approx. 1995: Cat. 3 5 hurricanes: + 233% (from 0.3 to 1.0) Primarily indicative of the natural climatic oscillation. Change in average annual number of landfalls between the last warm phase (approx to 1970) and the current warm phase since approx. 1995: Cat. 3 5 hurricanes: + 67% (from 0.6 to 1.0) Primarily indicative of the influence of global warming.

12 Changing risk Climate Change Increase in greenhouse gases Increase in temperature air + sea Increase in humidity Increase in sea level - higher weather variability - more frequent events - stronger events - more loss events - higher losses Risk reduction How can we What reduce is risk the risk? risk? hazard Risk = f ( vulnerability ) f ( values at risk by reducing one or more of these influencing factors

13 1. Preparing for floods Avoiding high flood peaks Strategies against the flood risk 2. Preparing for flooding Preventing high-value areas from flooding 3. Preparing for losses Limiting and reducing damage 4. Preparing for risk Preparing (financially) against ruin Risk reduction requires Public authorities Partnership People concerned Insurance industry

14 Main tasks of the partners Public authorities/organisations basic prevention measures - avoiding frequent losses - mitigation during rare events People concerned/affected actions during rare events loss reduction/limitation Insurance industry securing existence - prevention of ruinous consequences for personal/ business property - information about the risk Main tasks of the partners - land-use regulations - technical flood control - observation networks - forecasting and warning - flood retention - give information

15 Main tasks of the partners - proper construction - spot protection - appropriate behaviour (alarm plan, checklist) - get information - risk awareness Main tasks of the partners - assumes part of the risk - proper risk assessment - adequate contracts (deductibles, limits, exclusions) - accumulation control - give information

16 Insurance aspects Why is there a need for re-insurance? Insurance clients Primary insurer Reinsurer Insurance aspects Example of re-insured losses Hurricane Gilbert (Jamaica 1988) economic loss: insured loss: Mio. US-$ 700 Mio. US-$ re-insured loss: 690 Mio. US-$ (99 %) typical percentages of reinsured losses: weak markets: >90% strong markets <50%

17 Climate change is happening already, it cannot be stopped anymore, just attenuated. Natural catastrophes, especially weather related events, are increasing dramatically in number and magnitude. Loss potentials have reached new dimensions. There is more and more scientific evidence for causal links between global warming and increasing frequencies and intensities of natural catastrophes. The world s societies as well as the insurance industry have to adapt to the changing risks.

18 The main driving factors are: - settling in flood-prone areas, - higher and more vulnerable values, - climatic and environmental changes, - too low risk awareness and too short memory. We must learn to live with floods. At the same time, we must establish a culture of coping with the resulting risk. This requires a risk partnership between authorities, the people concerned and the insurance industry.

19 crucial: Keep awareness awake!... on all levels and within all groups of the society Pub in Cologne: Water level Chrstmas Eve ,64 m