Munich Re: Storm damage is rising faster than GDP – insurers fear billions in costs from climate change

Munich Insurance companies are facing a growing number of extreme weather events in the coming years. “Companies urgently need to adapt to increasing weather risks and make climate protection a priority,” demands Torsten Jeworrek, Member of the Management Board at Munich Re. The experienced top manager has been on the board of the world’s largest reinsurer since 2003.

At Swiss Re, the largest competitor, the experts even anticipate that damage from natural disasters due to increasing prosperity, urbanization and climate change will rise faster than the global gross domestic product (GDP) in the future.

Once again it is the addition of all global storm damage that causes disillusionment. According to calculations by Munich Re, the year 2021 came fourth, behind 2017, 2011 and 2005, with total global losses of around 280 billion dollars.

In terms of insured losses, however, with a total of around 120 billion dollars, last year took second place behind the record year 2017 – together with 2011 and 2005. The comparison with the figures of the shows how much individual events can increase the overall result in the calculations Competitor Swiss Re, which were published in mid-December.

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There the experts calculated an economic loss of 259 billion dollars and an insured loss of 105 billion dollars. Then came the devastating tornadoes in the US state of Kentucky, which drove the damage amount up until the end of the year.

Germany was also particularly hard hit last year. In July, storm depression Bernd triggered a devastating flash flood in the Ahr valley. “With insured damage to houses, household effects, businesses and vehicles of around 12.5 billion euros, 2021 will be the most expensive year of natural hazards since statistics began in the early 1970s,” said Jörg Asmussen, General Manager of the GDV industry association, shortly after Christmas .

Hurricane Ida is sticking out

The most expensive single event worldwide was Hurricane Ida in the USA in the fall. It caused a total loss of around $ 65 billion, of which $ 36 billion was insured.

Ernst Rauch, chief climatologist at Munich Re, recognizes a positive trend from this example: “The levees in New Orleans that were built after the severe floods in 2005 held up.” This means that Hurricane Ida caused significantly less damage guided.

Better prevention could also be a role model for Germany. “Here, however, the special topographical shapes have to be taken into account,” says Rauch. In river areas that were affected by the major floods in 2002 and 2013, the renaturation of the rivers is having an effect.

However, the situation on the Ahr is different. “Protecting against a flash flood is a more difficult task because it involves very small-scale measures,” says Rauch. Because the water rises much faster through a narrow valley, for example, it is a “generational task” to ensure permanent protection, especially for the existing buildings.

Satellite image of a hurricane

According to Munich Re calculations, the global total damage caused by storms and natural disasters amounted to around $ 280 billion in 2021.

(Photo: Reuters)

“It has to be a wake-up call for new buildings,” says Rauch. This is inevitably related to the sensitive question of whether rebuilding should even take place in areas that are permanently threatened.

In other places too, the experience from the USA served as a model for Germany, said Rauch. This applies, for example, to public infrastructure such as roads and bridges. They are hardly insured in this country. If it comes to a total loss, then “an onion-like protection system from the federal government, states and the European Commission” – the taxpayer is responsible for the subsequent reconstruction.

In the USA, the public infrastructure is at least partially privately insured. Calculations by Swiss Re show how great the challenges are there too. The investment gap in critical and aging infrastructure will average $ 500 billion per year by 2040.

“The consequences of the natural disasters that we saw this year show once again that considerable investments are necessary in strengthening critical infrastructures in order to mitigate the effects of extreme weather conditions,” says chief economist Jerome Jean Haegeli.

Industrialized countries are always better protected

In general, a rethinking process has only taken place in developed countries. Here, the proportion of insured losses has risen noticeably in recent years. The quota of insured losses is approaching the mark of almost 50 percent of the total losses, while in the so-called non-OECD countries only losses of less than ten percent are insured.

For the current year, the strong warming of the Arctic could again lead to major challenges, as climate expert Rauch explains. Because while temperatures in the northern polar region have risen noticeably in recent years, this development was significantly lower at the equator.

Flooding in Lafitte, Louisiana

Hurricane Ida wreaked havoc in autumn 2021.

(Photo: AP)

The result is changed flow patterns, which repeatedly stretch the strong wind field Jetstream like a rubber band to the south or north, where they can lead to long-lasting heat or cold waves. This leads, among other things, to so-called deep freeze phenomena such as the unusual snowfall recently in California or the severe cold snap in south Texas in February of last year.

At that time, millions of people were without electricity because buildings and infrastructure were insufficiently prepared for such temperatures. At around $ 30 billion, the Texas deep freeze event was the third costliest natural disaster of the past year.

The volcanic eruption that lasted three months on the Spanish island of La Palma could also give an impression of future major damage. “Volcanoes are an underestimated danger,” says Ernst Rauch. If Vesuvius near Naples or Mount Eden were to break out near the New Zealand metropolis of Auckland, it would be far more dangerous for the region than the recent events on La Palma.

More: Insurers pay record sums for natural damage.

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