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7 March 2013

Drought – An underestimated natural hazard – is the main theme of Topics Geo 2012

Throughout the world, droughts remain a widely underestimated natural hazard. They develop very gradually, often going unnoticed elsewhere in the world until they trigger a famine. Droughts can cause crop failures costing billions, severe bushfires as well as economic losses by restricting shipping or the generation of electricity.

Munich. According to Munich Re's data, there were around ten loss-producing droughts around the world each year in the early eighties, but the number in recent years has been about twice as high, as is stated in Munich Re's new publication Topics Geo 2012. “The Intergovernmental Panel on Climate Change (IPCC) expects heatwaves and droughts to increase in many regions of the world over the coming decades, in the course of which droughts will become one of the most destructive natural catastrophes”, says Prof. Peter Höppe, Head of Geo Risks Research at Munich Re.

In 2012, the corn belt in the US Midwest was hit by a drought such as occurs only about once every 40 years. It was triggered by record temperatures following a dry, overly warm winter. The resultant agricultural losses amounted to around US$ 20bn, of which about US$ 15bn were insured.

“The US agricultural insurance system is based on dividing the risks between the state and the insurance industry and in this case proved its worth. It will enable farmers to return to productivity quickly and avert bankruptcies of farmers and even agricultural banks. In view of the mounting drought risks confronting other countries, such an exemplary risk management system takes on great significance”, says Torsten Jeworrek, member of Munich Re's Board of Management.

In recent years, droughts in Texas and Russia have also drastically reduced crop yields. A drought in Somalia in 2011 triggered a nationwide famine.

All in all, about 900 natural catastrophes occurred in 2012, causing economic losses of US$ 170bn according to the most recent data. Of those losses, about US$ 70bn were insured. The losses were slightly higher than the ten-year average, but significantly lower than those in the record year 2011, which was dominated by the earthquake in Japan. With around 90% of worldwide natural catastrophe losses, America was hit far harder than is otherwise the case (usually about 70%).



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