Global insured losses from catastrophes were $45 billion in 2013

Overall, global insured losses were significantly lower in 2013 than in 2012. This was mainly because of a very quiet hurricane season in the United States. Nonetheless, with insurance penetration greater than anywhere else, the United States still had the biggest insured loss total last year. This was due to several tornado outbreaks and related thunder and winter storms.

Global protection gap continues to widen
Swiss Re says that risk prevention and mitigation measures have progressed in recent years. For instance, the losses from the floods in central and eastern Europe last year would have been much worse had the flood protection measures not been strengthened after the same region suffered severe flooding in 2002. Likewise, a very effective pre-designed evacuation drive saved thousands of lives when Cyclone Phailin made landfall in Odisha, India in October, with winds of up to 260 km per hour.

The cyclone, however, destroyed around 100,000 homes and more than 1.3 million hectares of cropland. Kurt Karl, chief economist at Swiss Re, says: “The total economic loss of Cyclone Phailin is estimated to be $4.5 billion, with just a tiny portion covered by insurance. The insurance industry can play a much larger role in helping societies deal with the fallout of disaster events, such as this and Typhoon Haiyan.”

The protection gap, the difference between total losses and insured losses, has progressively widened over the last forty years. Disaster events continue to generate increasing total losses alongside ongoing economic development, population growth and urbanization.

Fostering climate change resilience
Swiss Re notes that this sigma includes a special chapter on climate change, which is widely acknowledged to be caused by rising greenhouse gas emissions. Industrialization and human activity has led to a significant increase in greenhouse gas emissions which, alongside natural variability, have pushed global temperatures higher.

Rising temperatures are expected to lead to more frequent and severe extreme weather events in the future. If no action to reduce greenhouse gas emissions is taken, these events are likely to become an increasingly important factor in the ongoing upward trend of total losses. As this sigma report shows, along the U.S. Gulf coast, for example, the economic loss potential of climate change may rise to $21.5 billion per annum by 2030. However, “a number of cost-efficient adaptation measures are available, and these together could lower damages by 35 percent,” says David Bresch, Global Head Sustainability at Swiss Re.

“Among the most attractive adaptation measures are beach nourishment, levees, roof cover retrofits and improved building codes.”

Risk prevention and avoidance, and disaster risk management measures can help build resilience to climate change. So too can risk transfer solutions, by providing financial relief after a disaster has struck. Risk transfer does not stand in isolation: it is an integral part of any climate adaptation strategy.

— Read more in Natural catastrophes and man-made disasters in 2013 (Swiss Re, January 2014)