Reinsurers feeling effects of climate change

  • Insurers burned: the Camp wildfire topped the list of the most expensive natural disasters last year (Graph by Jonathan Kent/data from Munich Re NatCatService)

Climate change is having a growing impact on insurers’ bottom lines.

That is the view of German reinsurance giant Munich Re, which highlights an increasing incidence of costly forest fires as a symptom of global warming.

In its global catastrophe report, published yesterday, Munich Re estimated that insurers and reinsurers paid out $80 billion on worldwide natural disaster claims in 2018. That covered half of the estimated $160 billion in economic losses.

The single most costly event was the Camp Fire, which devastated the small town of Paradise in northern California in November and caused 68 fatalities, as well as total losses of $16.5 billion, of which $12.5 billion were insured.

Ernst Rauch, Munich Re’s chief climatologist, said global warming was causing forest fires to enter a new dimension, with losses running into the tens of billions of dollars.

“Higher and higher temperatures are leading to ever greater droughts, and high humidity in the winter means that shrubbery grows quickly, creating an easily flammable material in dry summers,” Mr Rauch told Reuters.

The report highlights three California wildfires, the Carr Fire in July and August and the Camp and Woolsey Fires of November, which between them caused overall losses of $24 billion, of which $18 billion were insured.

So almost one quarter of insured natural disaster losses were attributable to wildfires.

The year’s total of $80 billion paid out by insurers was less than the $140 billion tab they picked up in 2017, but still nearly double the inflation-adjusted $41 billion average over the past 30 years, Munich Re said.

Last year ranks among the ten costliest disaster years in terms of overall losses, and was the fourth-costliest year since 1980 for the insurance industry.

Hurricanes Michael and Florence generated total losses of $31 billion, of which $15 billion were insured.

North America accounted for 68 per cent of insured losses, while Typhoon Jebi, which cost insurers $9 billion and caused damages in Japan and Taiwan, was the costliest event outside the US.

Petra Löw, the report’s author, touched on the protection gap in developing economies.

“Payouts by the insurance industry helped to boost catastrophe resilience, in other words the ability after a disaster to return to normality as quickly as possible,” Ms Löw said.

“However, industrialised countries still account for the vast majority of insurance payouts following natural catastrophes.”

She added: “The situation with insurance protection in emerging and developing countries is quite different, despite the fact that, for financially weak and low-income countries, improving risk management and resilience-building systems is an important way of mitigating the impact of humanitarian disasters and promoting sustainable economic growth.”

However, Munich Re also noted that 50 per cent of global macroeconomic losses from natural catastrophes in 2018 were insured, a significantly higher percentage than the long-term average of 28 per cent.

Muinich Re NatCatService tallied 850 events, including storms, floods, fires, earthquakes, tsunamis and landslides.

Asia was worst affected with 43 per cent of all events and 74 per cent of the total 10,400 fatalities. The protection gap was very apparent there, with only $18 billion of losses insured out of total losses of $59 billion.