Climate Change and Natural Disasters: Economic Impacts and Possible Countermeasures Prof. Dr. Gerhard Berz, ret. Head, Geo Risks Research Dept., Munich Reinsurance Company
Natural Disasters 1980-2005 Worldwide 15,000 Loss events 32 % heat wave, drought 1,500,000 Fatalities <1 % winter damage, frost <1 % wildfire <1 % avalanche 34% 36% 20 % earthquake 2 % winter damage, frost 7 % wildfire 5 % heat wave, drought 2 % avalanche 4 % landslide 8 % flash flood 2 % volcanic activity 14 % tsunami 19 % flood 20% 27% <1 % storm surge 15% 3 % hail 13 % earthquake 38% 2 % volcanic activity <1 % tsunami 8 % tropical storm 4 % winter storm, blizzard 5 % other storms 4 % tornado 14 % severe storm 1 % landslide 12% 3 % flash flood 18% 9 % flood 16 % tropical storm 1% severe storm <1 % tornado <1 % other storms <1 % winter storm, blizzard As at July 2006 2006 NatCat SERVICE, Geo Risks Research, Munich Re
Natural Disasters 1980-2005 Worldwide 1 % flash flood 7 % flood 3 % hail 11 % severe storm Insured losses* 390 bn. US$ 2 % wildfire <1 % heat wave, drought 2 % winter damage, frost 7 % earthquake 7% 5% <1 % tsunami 7% 3 % wildfire 7 % heat wave, drought <1 % landslide 1 % flash flood 24 % flood Overall losses* 1,630 bn. US$ 25% 12% 2 % winter damage, frost 20% 43% 19 % earthquake 1 % hail 5 % severe storm 2 % tornado 6 % winter storm, blizzard <1 % other storms <1 % volcanic activity 1 % tsunami 29 % tropical storm 4 % tornado 1 % other storms 13 % winter storm, blizzard 81% 49 % tropical storm *original values As at July 2006 2006 NatCat SERVICE, Geo Risks Research, Munich Re
Classification of the different economies in four groups* and spatial distribution of the great natural catastrophes 1980-2005 Earthquake, tsunami, volcanic eruption Storm Flood Temperature extremes High income countries (GNI > 10,065 US$) Upper middle income countries (GNI 3,256 10,065 US$) Lower middle income countries (GNI 826 3,255 US$) Low income countries (GNI < 826 US$) *Sources: NatCatSERVICE, The World Bank Development Data Center
The Insured and the Uninsured World Example Insurance Density Life (%) % n.a. 0-0.5 uninsured 0.5-1 1-2 2-3 3-5 > 5 basic insurance appropriate insurance Premium/GDP/Capita Data Source: Munich Re, 2004
Percentage distribution of the loss events 1980-2005 relative to the income groups Number of natural catastrophes Total: 16,000 Number of fatalities Total: > 1 m 22% 17% 43% High income countries (GNI > 10,065 US$) Upper middle income countries (GNI 3,256 10,065 US$) Lower middle income countries (GNI 826 3,255 US$) 40% 6% 16% 18% Low income countries (GNI < 826 US$) 38% Economic losses Total: 2,100 bn US$ Insured losses Total: 460 bn US$ 10% 2% 3% 15% 11% 64% 95%
Great Weather Disasters 1950-2005 Decade comparison Number Economic losses Decade 15 46.7 Decade 16 62.9 Decade 29 88.7 Decade 44 141.8 Decade 74 477.0 last 10 1950-1959 1960-1969 1970-1979 1980-1989 1990-1999 1996-2005 44 480.1 The comparison of the last ten years with the 1960s shows a dramatic increase Factor last 10:1960 2.8 7.6 Insured losses 1.5 6.7 13.7 26.2 110.7 174.8 26.0 Losses in US$bn. 2005 values 2006 NatCatSERVICE, Geo Risks Research, Munich Re
The frequency and size of losses due to natural disasters are increasing dramatically all over the world The reasons - Rise in population - Better standard of living - Concentration of people and values in large conurbations - Settlement in and industrialization of extremely exposed regions - Susceptibility of modern societies and technologies to natural hazards - Increasing insurance density - Change in environmental conditions
Natural Hazards Risk Index for Megacities 2004 GeoRisikoForschung, Münchener Rück
Climate change: trends and effects Increase in greenhouse gases air/sea temperature humidity sea level windstorm/storm surges thunderstorms/hailstorms rainstorms/flood crop hazards ozon hole skin cancer biosphere damage
Insurance and the protection of climate Some areas of possible action: Information and (financial) motivation of clients and authorities (als through limitation of cover) Developing climate-"friendly" insurance products (e.g. in motor liability insurance) Eco-audits in environmental liability insurance Including environmental aspects (e.g. sustainability) in investment decisions Sponsoring of climate protection projects Eco-balance of insurance business and real estate
Coping with Current Loss Trends is Only Possible in Risk Partnerships. Carriers of Burden limited Government Insured Insurer Reinsurer Capital market
Climate Risk Index (1995 2004) Index Value 1995 2004 (average number of events): Rank 1 Honduras 11.00 (2.7) 2 Bangladesh 17.50 (12.2) 3 Somalia 19.00 (2.2) 4 Venezuela 19.50 (2.3) 5 Nicaragua 21.00 (1.9) Rank 6 Viet Nam 21.25 (9.0) 7 Dominican Republic 22.00 (14.5) 8 France 24.75 (1.7) 9 India 26.25 (16.6) 10 China 27.50 (25.2) 2006 Germanwatch, supported by NatCatSERVICE, GeoRisks Research, Munich Re Rank 1-10 50-100 11-49 >100 Not specified Down 10 countries where more than 90% of deaths were caused by one individual event Down 10 countries where more than 90% of losses were caused by one individual event 14
Microinsurance Important factors for the low income market Help people manage basic risks Relevant to special risks of low income households Affordable premiums payable (e.g. 1US$/month) Small benefit amounts (e.g. 200 US$) Simple rules and restrictions Specially adapted to client education Microinsurance can help the poor to escape poverty
Microinsurance can help the poor to escape poverty Examples Education insurance (India). children get education in case parents die Funeral insurance (South Africa). expensive funeral costs covered by a policy. low premium and small sum insured, but at least a funeral does not paralyze the economic scheme of a family Micro health insurance (Bangladesh). for medication. for expensive surgery ( medical shock )
Conclusions Disaster losses will continue to rise drastically in dimension and frequency Climate and other environmental changes will further increase catastrophe exposures in many regions The insurance industry has a number of instruments at its disposal for combating a further deterioration of its results and for actively promoting climate protection
Hans Joachim Schellnhuber, Director PIK, FOCUS 21.5.2006