The rising cost of extreme weather events

January 5, 2023
3-5 minutes

Extreme weather events are becoming more frequent and more intense, impacting people, assets and economies. Hurricanes, hailstorms, floodings, heat waves, wildfires wreak havoc around the world.

Early December, Swiss Re Institute published its evaluation of the economic losses due to natural catastrophes so far in 2022. They reached the staggering number of 260 billions of dollars. To put things in perspective, it represents

  • 26% more than the last 10 year average,
  • more than the 2021 GDP of Egypt or Vietnam or
  • the revenues of PepsiCo the same year.

And that was before a winter storm hit norther Europe mid-December and Elliott a “bomb cyclone” went over the US and Canada at the end of the year.

The insured losses totaled 115 billions dollars, a 42% increase compared to the previous year. Hurricane Ian was responsible for the largest part of that amount (50 to 65 billions dollars) as it combined high speed winds, heavy rains and floodings in urban and densely populated areas. That’s one major event representing half of the yearly losses. Hannover Re, one of the reinsurance companies, evaluates its Major Loss trend (Natural catastrophes and other major losses in excess of EUR 10 million gross): it almost doubled from 560 million euros in 2012 to 1100 in 2021.

Similarly, statistics from the European Environment Agency show that a few weather events lead to the largest share of economical impact. By compiling data from different sources, the EEA estimates the total economic losses in its member countries between 450 and 520 billion euros over the period of 1980 and 2020.  People, cities and companies were insured for only a quarter of these losses.

The impact of extreme weather events goes beyond life losses, injuries and property damage. They also disrupt supply chains and transportation, agriculture and food supply, cause business interruptions.

As weather and climate induced natural catastrophes are increasing, the human and economic costs are rising.

What can we do ?

First act on Climate Change mitigation measures as it is largely induced by human activities. But it won’t be enough, we need to develop adaptation strategies.

In order for these strategies to be effective, we need to better measure weather events, understanding where and with which force they will strike.

The World Meteorological Organization (WMO) is collaborating with the UN Development Programme and the UN Office for Disaster Risk Reduction to be able to operate in 2023 a system recording extreme weather events as well as the induced losses and damages. Historical data will be accessible and broad risk areas better mapped.

Then there is the monitoring of weather events as they happen. The biggest ones like Hurricanes will be easily seen with satellites. We all have in mind the impressive photos of these huge storms forming over the Atlantic. But people also need to be protected from smaller but nevertheless destructive phenomenons. To do so there is no better way than with a network of sensors. That’s the path we have chosen at HD Rain. Matched with Artificial Intelligence, the data our sensors measure will provide a unparalleled accuracy and actionable insights.

Public safety teams will be able to send early warnings to the population, early enough to put themselves and their belongings to safety. Insurance companies could be given the data they need for both their parametric insurance products and reference data for the future.

As our climate will continue to change, it is becoming more and more essential to develop adaptation measures.

It will become more difficult to build in impacted areas, because of the potential destruction but also because insurance companies will become more reluctant to cover risks. As premiums will rise, it will lower the affordability of insuring such homes and businesses.

The human and financial costs of weather events will continue to grow with their number and their severity. We need to mitigate climate change and adapt quickly to its consequences.