Playing down the risks
What coronavirus and climate change have in common
While the coronavirus is clearly dominating global events today, we must not close our eyes to other risks – especially risks such as climate change, which are long term in nature and for which there can never be a quick-fix vaccination. Climate change will still be with us long after Covid-19 has been defeated and will primarily affect our grandchildren and great-grandchildren.
There are two things that the pandemic and climate change have in common. Firstly, all experts knew they were coming and that their impact would be extreme. And secondly, we did little or nothing about it. Despite all our knowledge and regularly updated scenario analyses, the coronavirus caught the world more or less unawares.
What can coronavirus teach us about how to deal with climate change? Risks that are complex and difficult to understand require us to take the science more seriously and implement action more consistently in order to minimise these risks. And we need to prepare in order to limit their impact. Resilience is the oft-cited and appropriate term in this context.
The facts on climate change are there for all to see. Here are just a few of them: 2019 was the second-warmest year on record. All of the 19 years since 2001 are among the 20 warmest ever. Sea levels have risen by some 20 cm in the last 100 years. Researchers see in all of this the indelible footprint of climate change. Higher temperatures mean that more water evaporates and that our weather is running at full tilt.
These facts prompted us as insurers to take action a long time ago. We invest huge resources in specific research that analyses the regional effects of climate change. This helps us to correctly assess the changing risks of natural hazards.
Natural catastrophes hit increasingly vulnerable societies
What we know so far: severe thunderstorms in Europe and North America, often accompanied by hail or tornadoes, are increasing, as are the losses they cause, even allowing for the rise in values. It is the same story with heatwaves, droughts and wildfires. Although we are unlikely to see a rise in the overall number of tropical cyclones, climate researchers have evidence suggesting that the proportion of severe storms is likely to increase. There are also indications that such storms are more likely to bring torrential rain. This was the case last year when Typhoon Hagibis caused widespread and devastating floods in Japan. It was the same with Hurricane Harvey in 2017 as it left large parts of the US city Houston submerged under water.
Unlike a pandemic, natural hazard losses are invariably regional in nature, even if the losses involved are immense and many people can lose their lives. But natural catastrophes are becoming more systemic and global in nature as they hit increasingly vulnerable societies and the global economy becomes ever-more interconnected and reliant on supply chains. Since 1990, global trade has increased by 350%, twice as much as global economic output. Economists see this as an indicator of increasing interdependencies.
We have already seen the effects of this. In 2011, floods in Thailand resulted in a global shortage of computer parts for hard drives, as many of the key suppliers were located in the flooded areas north of Bangkok. In the same year, the earthquake in Japan and the subsequent nuclear accident at Fukushima resulted in a global paint shortage for certain colors of car as production of a special pigment had to be temporarily halted following the catastrophe.
Coming back to the changing risk of climate change and its influence on weather-related disasters: it seems irresponsible to me that the overwhelming evidence of climate change and its consequences have been dealt with so half-heartedly. What makes climate change so dramatic are its long-term effects. Its consequences can no longer be prevented, only mitigated.
© Munich ReWe now need to finally and consistently address the challenge of climate change, so that it does not remain a risk that we simply did not want to believe. This will require consistent, resolute action from as many countries as possible.
In the financial sector, many companies are now scrutinising their investments and their long-term business, simply to check whether they will be of value in the future or whether there could be a surge of loan defaults in areas threatened, for example, by sea level rises or increasing floods. International companies that rely on the prompt delivery of special parts are analyzing their supply chains in order to find alternatives to suppliers in areas threatened by weather-related disasters. And they are right to do so, as it reduces their vulnerability to the consequences of extreme events.
We know what needs to be done from a political and social perspective: mitigate climate change as much as possible and prepare economies and societies for its consequences. That is one reason why Munich Re has been supporting various research institutes for many years, including the Insurance Institute for Business & Home Safety (IBHS) in the US. IBHS operates a research centre in which full-scale houses are destroyed by hurricane-strength winds, bombarded with hailstones, or flooded with torrential rain in order to identify more robust construction methods. The aim is to achieve better protection for human lives and to avoid losses.
We now need to finally and consistently address the challenge of climate change, so that it does not remain a risk that we simply did not want to believe. This will require consistent, resolute action from as many countries as possible, even if that may appear to be wishful thinking at this present time. Nobody can do this alone.