Extreme weather risks: Re|store people’s lives

Weather disasters destroy assets worth billions – Extreme insurance gap in large parts of Asia-Pacific

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~US$ 1,500bn

Losses from weather catastrophes in Asia-Pacific since 1980
Just one-eighth of the losses have been insured

Annual losses from weather disasters such as tropical cyclones, floods or wildfires frequently run into hundreds of billions of dollars. And that is just the figure for direct losses.

In Asia-Pacific, weather-related natural disasters have caused losses of some US$ 1,500bn since 1980 and killed more than 600,000 people. The insurance gap is alarming: excluding the figures for Japan and Australia, less than 5% of the overall losses were borne by insurers.

It is time to act and to mitigate the consequences, especially as climate change is increasing the extreme weather risks in many regions. So far, climate change has not been a systemic risk, but it will be if global warming continues unabated.

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Here's what we know from 50 years of research:

Influence of natural climate variations

While the effects of climate change are long term, natural climate variations have a direct influence on many weather extremes over shorter periods, sometimes even over a matter of months. Here are some examples of this:

El Niño-Southern Oscillation (ENSO)

The natural ocean temperature variation in the Pacific with the two countervailing versions of El Niño and La Niña also changes circulation patterns in the atmosphere, thus influencing weather extremes across the world. For example, El Niño conditions tend to bring slightly higher typhoon activity in the Northwest Pacific, drier weather in Australia/Oceania and more rainfall in South India and the Southeast of China. La Niña has the opposite effect in many cases.

Regional climate phenomena

Besides the ENSO climate swing that influences weather risks across many parts of the world, there are many other climate variations that have significant effects at a regional level. Such variations have, for instance, a strong influence on the paths taken by typhoons in the Northwest Pacific, resulting in record typhoon losses in Japan in 2018 and 2019. But such natural variations also play a major part in Australia in modifying heatwave, drought and bushfire conditions from one year to the other, although in the long term climate change has also massively increased the bushfire risk in Australia.

Consequences of climate change

The emissions of anthropogenic greenhouse gases since industrialisation began are the main cause of rising temperatures in our planet’s atmosphere and oceans. Sea ice and glaciers are melting. Sea levels are rising. Higher temperatures – and the correspondingly higher energy content in the atmosphere – change the probabilities of individual meteorological parameters and weather patterns such as thunderstorms, heatwaves and wildfires. The long-term changes in the probabilities of such events are especially relevant from a risk perspective.

Insurance gap: Extreme weather risks in Asia-Pacific

Just one-eighth of weather-catastrophe losses in Asia and Australia/Oceania since 1980 have been covered by insurance. This underinsurance is most extreme in emerging countries. For example, in Asia-Pacific (excluding Japan and Australia) insured losses from weather catastrophes since 1980 are at less than 5% of the overall losses. What's more, the protection gap has not been significantly reduced: from 2015 to 2020, the share of insured losses was around 6%.

But many natural hazards remain underinsured even in developed countries, as people, companies or even governments frequently lack sufficient risk awareness. Take the example of the flood risk in Japan: while nearly half of all weather-disaster losses there since 1980 have been insured, the figure for flood losses in the same period is just one-fifth.

Losses from weather disasters in Asia and Australia/Oceania 1980-2020

Weather disaster losses 1980-2020: US$ 1,475bn

Thereof insured losses 1980-2020: US$ 178bn

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Profound knowledge of scientific correlations, statistical trends and relevant high-resolution data are essential elements when assessing extreme weather risks. Our experts are part of an international scientific network providing the risk analyses that form the basis for our risk models. This allows us to have the best-possible offer of weather-related and weather-disaster covers and to develop new concepts for previously uncovered risks for a whole range of different client groups.

Insurance helps people, companies and society to recover more quickly from the financial impact of a catastrophe. Benefit from our data and decades of experience in assessing extreme weather risks and the factors behind them. Munich Re can offer solutions to meet your specific requirements.