Extreme weather risks: Re|store people’s lives

Extreme weather destroys assets worth billions

US$ 4,200bn

Losses from weather catastrophes since 1980

Annual losses from weather disasters such as hurricanes, hailstorms or wildfires frequently run into hundreds of billions of dollars. And that is just the figure for direct losses. It does not include indirect losses following the breakdown of supply chains, or because banks experience a surge in loan defaults, or power plants have to scale back production during a heatwave. It is time to act and to mitigate the consequences, especially as climate change is increasing the extreme weather risks in many regions.

In total, weather-related natural disasters have caused losses of some US$ 4,200bn since 1980 and killed nearly a million people. Only about a third of these losses were insured. This perfectly illustrates just how important loss prevention is given the huge loss potential involved. Good risk management also requires precise knowledge of extreme weather risks and the factors that influence them, for example climate change.

ReIstore people's lives

Extreme weather destroys assets worth billions

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Extreme weather risks: What we know from 50 years of research

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.

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 a matter of months. Here are some examples of this:

El Niño-Southern Oscillation (ENSO)

The natural temperature variation in the Pacific with the two countervailing versions of El Niño and La Niña changes circulation patterns in the atmosphere, thus influencing many weather extremes across the world. For example, El Niño conditions tend to bring slightly lower hurricane activity in the North Atlantic, drier weather in the northern USA and Canada, stronger precipitation in the southern USA and more droughts in southeast Asia and Australia. 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 the recent high typhoon losses in Japan. 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.

Insurance gap: Extreme weather risks

Less than one-third of global weather-catastrophe losses are covered by insurance. This underinsurance is most extreme in the poorer countries. For example, in Asia (excluding Japan) insured losses from weather catastrophes since 1980 are at less than 5% of the overall losses. But many natural hazards remain underinsured even in developed countries, as people, companies or even governments frequently do not have sufficient risk awareness. Take the example of the flood risk in North America: 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 worldwide 1980-2019

Overall losses 1980-2019: US$ 4,238bn

Insured losses 1980-2019: US$ 1,359bn

Our offer

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.