Although there has been a significant increase in both economic and insured losses from natural catastrophes in recent decades, it is important to put these numbers in context. With the exception of coastal flood, inland flood and drought, the wholesale attribution of rising financial losses to an increase in hazard frequency can be misleading. Statements concerning the influence of global warming on loss trends would be better served if normalized by factors such as inflation, (per capita) gross domestic product, total insured value, population density and annualized property value. Indeed, the IPCC agrees that ignoring these factors leaves an upward trend in losses for purely economic reasons, notwithstanding any behavior in the peril. As an example, the recent “trend” in hurricane losses for the coastal United States loses clarity when normalized by inflation and population density. (1)
Posts Tagged ‘flood’
Global climate models project a best estimate of a further two to four degree (Celsius) increase in the mean temperature of the Earth by the end of this century. Although this may seem insignificant on an intuitive level, the resulting impacts are of significant concern. Sea-level rise is the most significant threat for coastal areas as a result of melting glaciers. Apart from this threat, changing weather patterns will result in drought and inland flood threats for some areas. As a general principle of climate change, changes to the mean of meteorological extreme value distributions can be expected but an increase in tail thickness (or variability) is of greater concern. The day-to-day variability that we see today will likely expand.
Guy Carpenter Extends Coverage of Industrial Park Database to Include Vietnam, Malaysia and South Korea
In 2011, Thailand experienced its worst flooding in years with insured losses estimated at around USD15 billion,(1) of which the Thai General Insurance Association attributed more than 90 percent arising from commercial risks located within industrial parks. As industrial parks are common in several countries in the region, Guy Carpenter developed a database of digitized boundaries of these parks to support its clients’ ability to analyze the potential for catastrophic losses arising from exposures located within park boundaries.
Richard Banyard, Senior Vice President, Lance Finley, Managing Director, Jane Furnas, Senior Vice President and Scott VanKoughnett, Senior Vice President
Insurance policies are carefully drafted to outline coverage that is needed by policyholders while also specifying those areas where coverage is not expected to apply - the goal is to provide contract certainty, not in the usual sense of timeliness of contract signing, but from the perspective of specific policy language. Sometimes, however, contract certainty is not so certain. Recent examples have shown that insurers are increasingly facing reinterpretations of their policies by the judicial system, regulators, politicians and even the public via social media, all exerting pressure on insurers to provide coverage not previously anticipated by the drafters and underwriters of those policies. As these claims are presented to the reinsurance market, pressure is also put on reinsurers to provide coverage that they may not have originally contemplated. Insurers need to know that their reinsurers partner with them in such situations, and that reinsurance contracts provide appropriate flexibility to help ensure the reinsurers’ promise to pay. The comments made in this article are intended solely to foster discussion on this topic.
Nick Frankland, Chief Executive Officer, EMEA
Are the insurance and reinsurance industries adequately serving their clients in the transfer of risk? The question is a timely one because much recent discussion has focused on the entry of new capital into the industries and its effect on capacity and pricing. Regulatory and economic conditions have also concentrated minds on capital optimization with reinsurance playing an increased role in risk finance that may have deflected attention from the fundamental business of protecting against risk.
The Intergovernmental Panel on Climate Change (IPCC) publications represent scientific consensus among many of the world’s top scientists (and scientific consensus is difficult to achieve). Their findings are generally consistent with the broader scientific literature.
Economic losses resulting from natural disasters increased from USD75.5 Billion in the 1960s to USD659.9 Billion in the 1990s (IPCC AR4, 2007 - Working Group II, Section 184.108.40.206). Insured losses have also increased, and “the dominant signal is of significant increase in the values of exposure” (IPCC AR4, 2007 - Working Group II, Section 220.127.116.11). Furthermore, the IPCC states that “failure to adjust for time-variant economic factors yields loss amounts that are not directly comparable and a pronounced upward trend for purely economic reasons.” As an example,the recent “trend” in hurricane losses for the coastal United States becomes indistinguishable when normalized by inflation and population density (Pielke et al., 2008).
Extratropical cyclones pose a hazard primarily due to wind and flooding. They can also bring storm surge impacts in coastal regions. Portions of Europe are particularly prone to extratropical cyclone occurrence and these higher counts will naturally include some stronger events by nature of their underlying intensity distributions.
No observable trends have been detected in the United States with either tornado or hail climatology, according to the scientific literature at large and the IPCC. The tornado events of the very active 2011 season are not unprecedented in history (Doswell et al., 2012). Such outbreaks have occurred before - in 1974, for example, and such outbreaks will occur again.