Global insurers paid less in damage claims for extreme weather in the last 6 months

By Camille von Kaenel | 07/15/2015 08:31 AM EDT

Global natural catastrophes in the last six months cost insurers less than usual, with the winter storms on the U.S. East Coast topping the charts, German reinsurance company Munich Re announced yesterday.

Global natural catastrophes in the last six months cost insurers less than usual, with the winter storms on the U.S. East Coast topping the charts, German reinsurance company Munich Re announced yesterday.

Insured losses in 2015 so far totaled about $12 billion worldwide and $8 billion in the United States — half of the price tag of last year’s first six months. Overall damages reached $35 billion, or roughly the value of Instagram. That’s compared with economic losses adding up to around $95 billion on average each year over the last decade.

Though this year has lower numbers, it isn’t completely out of line with recent years, experts at Munich Re said.


"It does not mean that we are now on the safe side or that things have changed significantly," said Peter Hoeppe, the head of geo risk at Munich Re.

In fact, natural catastrophes have caused more deaths — around 16,000 — in the past six months than they have in recent years. Many died in heat waves in Pakistan and India, when temperatures reached 47 degrees Celsius (116 degrees Fahrenheit), and in the earthquake in Nepal.

The last six months also saw a significantly higher number of natural catastrophes than the past 30-year average. But many of the recent events only caused small losses to insurers, mainly because they hit developing countries where less infrastructure is insured.

In the Nepalese earthquake, for example, insurers only covered $140 million of the $4.5 billion economic loss. That’s 3 percent. By comparison, insurers covered about three-quarters of the damage caused by the harsh winter on the East Coast of North America. The disparity doesn’t only affect earthquake recovery.

"There is no insurance [in developing countries] to provide reliable financing after an extreme weather event," Hoeppe said.

The five-year project announced by the leaders of the Group of Seven countries in June to insure 400 million people in vulnerable countries could be a milestone in changing that, he added (ClimateWire, June 10). Munich Re helped develop the international project. The G-7 could announce the first policy, probably to expand the fledgling systems already in place in Africa or in the Caribbean, by the end of 2015 or early 2016, Hoeppe said.

An expensive winter for the U.S.

The northeastern United States and Canada endured exceptionally cold and icy winters this year, with Boston receiving a record 10 feet of snow. This year, the cold snap ended up costing insurers $1.8 billion in fallen roofs, burst pipes and other damage, out of a total blow of $2.4 billion. The entire 2014-15 winter caused $4.3 billion in losses, of which insurers covered $3.2 billion.

No other natural catastrophe in the last six months came close to costing insurers as much. Munich Re saw the winter as a sign the United States must adapt.

"The fact that, once again, tens of thousands of people were temporarily left without electricity shows that the US simply must invest in stronger, more weather resilient infrastructure," Tony Kuczinski, the president and CEO of Munich Reinsurance America, said in a statement.

Other weather events in the United States caused less loss than usual. Take tornados and severe thunderstorms, for example. The twisters turned up more than usual in May and June, but the tornado season had picked up steam late. Overall, they didn’t cause as much damage as in recent history. No thunderstorm or tornado reached the $1 billion mark in the last six months.

John Allen, who researches severe weather at Columbia University, said that might not mean much.

"Even if we think we see a quiet tornado season, it doesn’t mean that it is a quiet tornado season, it may mean we’re just lucky," said Allen. "The probability of that hitting a town is relatively small. But, you know, there’s still people who’ve lost their lives, lost their crops, had damage to their homes."

Because insurers haven’t fully processed claims from some of the storms in the first half of the year, losses may still climb, Munich Re advised.

Some forgo flood insurance

It can take just one big event — one tornado outbreak, one major hurricane — to skew yearly insurance losses. Ten years on, Hurricane Katrina remains the costliest natural catastrophe to insurers ever, at around $60 billion.

This year, nothing similar happened, but the risk remains. For example, Hurricane Andrew struck in an otherwise relatively quiet season in 1992, costing insurers $17 billion. Robert Hartwig, the president of the Insurance Information Institute, warned that people should keep the risks in mind.

"The proportion of homes with flood insurance is declining right now, because of rate increases," Hartwig said. "You couple that with, in places like Florida, individuals there have not seen a major hurricane in a decade. Memories are short. We are absolutely headed to a date with Mother Nature here."

Climate-related events like heat waves or floods are more likely to cause out-of-the-ordinary damages than other natural disasters, historical data from Munich Re show.

"If you look at longer time periods, the number of geophysical events stayed fairly constant, while weather- and climate-related events are showing the largest variability between the years," said Carl Hedde, the head of risk accumulation at Munich Reinsurance America.

Some unusual weather does loom over the rest of 2015. Forecasters expect a strong El Niño event that will likely last through the winter. The shifting weather patterns could bring flooding to the West Coast and a whole host of new risks worldwide.

Insurers are keeping their eyes on it.