Allianz Risk Barometer 2019
Major risks in focus: Nat Cat

More than 11,000 people either died or were reported missing as a result of catastrophe events in 2018 with an earthquake causing a tsunami in Sulawesi, Indonesia, in September 2018, resulting in the highest human toll of the year – over 3,500 estimated dead or missing. 2018 also brought approximately $146bn of economic losses from natural catastrophes (e.g. storm, flood, earthquake), according to preliminary estimates from Swiss Re¹.

The reinsurer also estimated that insured losses alone from natural catastrophes and man-made disasters in 2018 will reach $79bn, making it the fourth highest year ever, based on its Sigma research records. While higher than the annual average of the previous decade ($71bn), this total is down by half compared to 2017 ($150bn), which remains the costliest year on record for insurers, driven by the significant damage caused by three category 4+ hurricanes Harvey, Irma and Maria (HIM).

“Although there has not been a single major natural catastrophe event comparable in size with the 2017 hurricane events, the 2018 aggregated losses from multiple smaller and mid-sized events have led to considerable overall insured losses,” says Cosmin Tanasescu, Head of Catastrophe Risk Research & Development, AGCS. “We can think of 2018 as the ‘little brother year of 2017’ when it comes to the hurricane impact in the Northern Atlantic.”

Natural catastrophe activity is expected to account for over $70bn of 2018’s insured catastrophe losses, with events such as hurricanes Michael and Florence in North America; typhoons Jebi and Mangkhut in Asia; wildfires in California; floods in India; and earthquakes in Japan, Indonesia and Papua New Guinea, contributing to this total loss figure. Although there may not have been an event of the magnitude of any of the HIM losses in the 2018 catastrophe year, significant activity was still evident. For example, 2018 is the second year of insurance payouts for wildfires exceeding $10bn in California alone following last year’s Carr and Tubbs fires wreaking havoc on the state in 2017. Meanwhile, Typhoon Jebi became the most expensive typhoon on record, according to the General Insurance Association of Japan (GIAJ). It said it caused estimated insured losses of 585.1bn yen ($5.2bn) when it lashed the west coast of Japan in September 2018, resulting in widespread flooding and windmdamage across the region. Reinsurer Munich Re has since estimated insured losses to be in the range of $9bn².

“Augmenting exposure and property values, as well as their concentration in high-hazard areas, have been the key drivers of the increase in natural catastrophe losses in recent decades,” says Carina Pfeuffer, Cat Risk Analyst, AGCS.

Allianz Risk Barometer respondents fear that recent natural catastrophe and extreme weather activity could be a harbinger of increasing financial losses and disruption ensuring climate change/increasing volatility of weather (8th, 13% of responses) rises to its highest-ever position in the global risk ranking.

Climate change is omnipresent in all regions around the world. Melting sea ice and polar ice shields resulting in rising sea levels, increasing permafrost thawing, droughts and heat waves in some areas and heavy precipitation in others are some of the commonly understood impacts of a warming climate. Generally, these impacts are expected to intensify in the coming decades.

Humans are adding enormous amounts of greenhouse gases to those naturally occurring in the atmosphere by burning fossil fuels, cutting down rainforests and farming livestock, which fuel the greenhouse effect and thus global warming.

“Overall economic losses caused by natural disasters are increasing worldwide,” says Tanasescu. ”Both insureds and insurers need to stay on top of changing exposures around the world in order to effectively manage natural catastrophe risk.”

Extreme events are expected to change in intensity and frequency: increased wind speeds in tropical storms are projected as well as intensified heat waves and droughts for the US. For example, by 2050 the wildfire season in the western US is expected to be about three weeks longer. Therefore more burned areas are to be expected in future. For Atlantic and Eastern North Pacific hurricanes, increased precipitation rates and intensities are projected. Europe faces more frequent flash and pluvial floods. In Asia, more rain is projected on overall fewer rainy days, leading to more flooding but less rainwater that gets the chance to actually percolate underground to recharge aquifers.

Hurricanes Florence and Harvey in 2018 and 2017 respectively have shown the multidimensional risk aspects of severe storm activity. With both of these events, the flooding component was more concerning than the losses caused by wind, which emphasizes the need to manage natural catastrophe risk in a more holistic way to truly effectively assess and mitigate the impact from hurricanes.

In future, further improvements to the modeling and forecasting of extreme weather events remains key, says Tanasescu. Hurricane Florence was initially forecast to make landfall as a major hurricane but was then downgraded to a Category 1 event just before it hit Wrightsville Beach, North Carolina, in September 2018. Total precipitation amounts causing landslides and flash floods were highly unpredictable while the track forecast was actually fairly accurate.

In order to help businesses mitigate their exposures and reduce the impact of natural catastrophe activity, insurers such as AGCS are using a range of sophisticated catastrophe management tools to monitor storms and assess natural catastrophe activity. AGCS’ Client Risk Profile service highlights the key perils for a business’ locations by using detailed hazard and advanced modeling information. According to Tanasescu, as a result, businesses can gain a better understanding of their catastrophe risks, ascertain their risk management strategies and identify appropriate mitigation measures, including optimization of their insurance coverage according to their own risk appetite.

“A key element of disaster preparedness is emergency scenario planning which involves among many other aspects, the analysis of the supply chain,” says Tanasescu. “This is why AGCS is evaluating various approaches and methodologies to to continuously improve our supply chain risk management capabilities. In the planning of future sites, companies should take into account the specific natural hazard risk profile and also think ahead by assessing future risk levels due to direct or indirect impacts of climate change.”