Allianz Risk Barometer 2018
Major risks in focus: Nat Cat

Uptick in activity begs the question: Is this a new “normal” of extreme weather? Allianz Risk Barometer respondents are concerned it is – and about the potential for larger losses.

Approximately, $330bn in overall losses from natural catastrophes. Around $135bn in insured losses1. At least $90bn from the three category 4+ hurricanes – Harvey, Irma, and Maria (HIM) that wreaked havoc in September, making it the most active hurricane month on record2 and 2017 one of the most costliest seasons on record. Over $2bn dollars in insured losses from an earthquake in Mexico, also during September. Nearly $10bn worth of wildfire insurance claims in California alone through October3. Wherever you look, it doesn’t take long to locate a startling statistic about natural catastrophe activity during 2017. And the numbers could get worse. Given the wide-ranging impact of HIM – from flood damage by Harvey in Houston to business interruption (BI) from record power outages in Puerto Rico caused by Maria – it may be some time before the final loss total is known.

Activity was not just confined to the Americas. Severe flooding events rocked Bangladesh, China, Sri Lanka, Peru and Zimbabwe. Killer mudslides devastated Columbia and Sierra Leone. Extreme wildfires tore across the Iberian peninsula and multi-seasonal drought conditions continued throughout the Mediterranean and parts of Africa and Australia, which was also hit hard by Cyclone Debbie in March. In the Philippines, Tropical Storm Tembin triggered floods and landslides on Christmas  Day. If businesses had become complacent following a number of relatively quiet catastrophe years – by insurance standards at least – 2017 provided a wake-up call, ensuring natural catastrophe risk rises up the Risk Barometer to 3rd position in 2018.

“Recent events have been a reminder of how significant the impact of natural catastrophes can be, both socially and economically,” says Ali Shahkarami, Head of Catastrophe Risk Research, AGCS. “As industries become leaner and more connected globally, it is becoming more and more clear that natural  catastrophes can trigger or contribute to many other risks, such as business interruption or loss of market share, for example. This has certainly influenced the sustained attention on natural catastrophes in the Risk Barometer.”

Respondents fear the 2017 natural catastrophe year could be a harbinger of things to come with many believing the intensity of natural catastrophes will increase in future due to the impact of a changing climate. Research shows there has been a 46% increase in weather disasters since 2000 and that 797 events were recorded in 2016 alone, resulting in $129bn of losses4. Climate change/increasing weather volatility (10th position) is a new entrant in the top 10 risks in 2018 and many scientists agree that changes in the climate and weather patterns have the potential to affect extreme events around the world in three primary ways – more intense windstorms, incidences of heavy rainfall leading to flooding events and more severe drought episodes. Reinsurer Munich Re believes that although it cannot be attributed with any statistical significance, the changing climate already played a role in the 2017 hurricane season5. It also warns that the 2017 season looks like “a foretaste of the future” and that future projections of increased numbers of extreme storms may materialize in terms of a higher frequency of exceptional seasons such as 2004, 2005 and last year.

The loss potential for businesses from future natural catastrophes is exacerbated by additional risk factors such as rapid urbanization – and the failure of development of sufficient infrastructure to keep pace with this – and greater interconnectedness, resulting in increasing contingent business interruption (CBI) and supply chain exposures. For example, there has been significant growth in population and development of commercial property in the US over the past decade. Modeler AIR Worldwide estimates the insured value of residential and commercial properties in coastal counties in the US now exceeds $13trn6. Values have increased 13% in three years.

 

“There are more people and more development in harm’s way especially along the US coasts,” says Andrew Higgins, Technical Manager, Americas, Allianz Risk Consulting, AGCS. “In order to protect coastal communities, there needs to be ample zoning laws to prevent unbridled overdevelopment, along with less concrete and more green space to allow tropical rains to properly drain. For example, some areas of Houston received about half of the amount of rain from Hurricane Harvey compared with a recordsetting deluge in Nederland, Texas (154cm/60.6 inches)7 but experienced much worse flooding. The difference is overdevelopment.”

In order to keep up with rapidly-changing risk concentration, insurers such as AGCS are using a variety of new catastrophe management tools and insurance solutions to monitor storms and assess natural catastrophe damages from events such as those in 2017. These tools include drones – used outdoors to assess roof wind damages and inaccessible locations, but also indoors to assess water damage in large facilities – and satellite technology and 3D imagery, to locate risks more quickly and more precisely.

“Currently we have several initiatives ongoing that combine state-of-the-art data analytics tools and the geographic information system (GIS) with the latest technologies on satellite imagery, big data and machine learning to provide advanced solutions that will significantly aid critical decision-making,” explains Shahkarami. “For example, this would allow us to have aerial images of impacted regions and potentially assess damage level to facilities immediately after a wildfire event or estimate the extent of flooding or damage to the top of the roofs of buildings after a windstorm. We live in exciting times from a technological perspective and are eager to utilize every tool available to better serve our customers.”

SOURCES

1. Munich Re NatCatSERVICE, Natural Catastrophe Review 2017

2. The Weather Channel, 2017 Atlantic hurricane season recap: 17 moments we'll never forget, November 28, 2017

3. California Department of Insurance, October wildfire claims top $9.4 billion statewide

4. The Lancet Countdown on health and climate change

5. Munich Re, The hurricane season 2017: a cluster of extreme storms

6. AIR Worldwide, The Coastline at Risk: 2016 Update to the Estimated Insured Value of U.S. Coastal Properties

7. Washington Post, 60 inches of rain fell from Hurricane Harvey in Texas, shattering U.S. storm record, September 29, 2017

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