Disasters, continuing to climb, inflict record insurance losses in 2011

Evan Lehmann, E&E reporter
Published: Thursday, January 5, 2012

Natural disasters struck the globe at a violent pace last year that reflects a rapid rise of damaging weather events like thunderstorms, floods and wildfires over the past 30 years.

There were 820 major disasters in 2011, including a parade of springtime storms in the United States that unleashed nearly 1,900 tornadoes, barrages of pelting hail and flood-feeding rainfall.

Last year's 69 major thunderstorms killed 617 Americans and caused $47 billion in damages, nearly $25 billion of which was insured. That shattered the previous record for insured losses by about $12 billion. It was set in 2010.

The string of thunderstorms underscores a climbing incidence of meteorological catastrophes in the past three decades. Insurers could count on losing about $2 billion from storm damage in the early 1980s. Now the annual average loss is above $10 billion, according to the giant reinsurer Munich Re.

Last year was much worse. Damage from the inland storms amounted altogether to the fourth-largest disaster in U.S. history, barely trailing insured losses from the 9/11 terrorist attacks and Hurricane Andrew in 1992, which inflicted $25 billion in damage. Hurricane Katrina remains the most expensive disaster, at
$48 billion.

"That gives you a sense of how extraordinary this spring's storms and tornadoes were," said Robert Hartwig, president of the Insurance Information Institute. "There was nowhere to run and nowhere to hide in some sense, at least if you were an insurer operating east of the Rocky Mountains."

Huge damage apart from hurricanes

The storms also reveal a disaster "realignment," he said, by causing more damage in interior regions of the United States, rather than coastal areas that are vulnerable to loss when expanding populations are battered by bruising ocean storms.

Insured damage in the United States last year amounted to $35.9 billion. That's far above the average of
$23.8 billion since 2000, despite the recent near-disappearance of hurricanes -- one of nature's most painful events. A major hurricane hasn't made landfall in the United States since Wilma struck Florida in
2005.

"This gap between major hurricane landfalls is almost unprecedented in the historical record," Carl Hedde, who oversees risk accumulation for Munich Reinsurance America, said on a conference call yesterday.

Worldwide, the presence of 820 disasters last year could be described as routine -- at least in modern terms. The record number of events occurred in 2007, with 1,025, and the average since 2001 is 790 disasters.

But what 2011 lacked in numbers, it made up in economic loss. The world has never before seen as much damage as it did last year, amounting to $380 billion overall and $105 billion in insured loss. Both are new records.

The Japanese earthquake and the tsunami that followed caused the brunt of it, killing 15,840 people and inflicting $210 billion in overall damage. About $40 billion of that was insured. Another quake in New Zealand killed 181 people and caused $16 billion in overall damage.

The globe also strained under major flooding in Thailand that killed 813 people and caused $40 billion in overall damage, followed by the U.S. thunderstorms and Hurricane Irene, which lashed the Caribbean islands and U.S. East Coast. Irene killed 55 people and caused $15 billion in overall damage, most of which occurred after it was downgraded to a tropical storm.

Partly 'driven' by climate change

There's debate among insurers about the impact that climate change is having on the intensification of disasters. Everyone agrees that the blooming wealth in many Asian nations and the rapid rise of population centers along U.S. coastlines are driving up the damage. There are more targets to be ruined.

But Ernst Rauch, who heads Munich Re's Corporate Climate Centre, believes the rise in disasters can't be explained entirely by the emergence of more development and higher property values. If that were the case, he said yesterday, then the frequency of earthquakes would be climbing at a clip similar to the rise of climate-connected events like thunderstorms, hurricanes, flooding and fires.

But it hasn't. Earthquakes have remained mostly steady over the past 30 years, even as winter storm damage in the United States has doubled, thunderstorm losses have jumped fivefold, and the number of acres burned by wildfires has steadily risen, according to Munich Re.

"What we can see is that with the geophysical events [quakes] ... we hardly do see any trend or any increase," Rauch said. "It's entirely different when you look at weather-related disasters, where we do see this increase."

"Our interpretation of this increase is that at least part of this increasing frequency and number of weather-related natural disasters is driven by climate change," he said. "However, we cannot quantify this."

Whatever the cause, the rise in catastrophes is chipping away at insurers' profits.

Property and casualty insurers suffered their largest underwriting losses in a decade last year. For every dollar they collected in premiums, they paid out $1.08 in damage coverage to policyholders, according to the Insurance Information Institute.

That means that many insurance companies have begun to raise rates on homeowners and businesses, even though they've escaped traditional losses associated with hurricanes.

"Altogether, catastrophes and a few other factors are leading to the largest underwriting loss that the property-casualty insurance industry has seen since 2001," said Hartwig. "That's very substantial."

Reprinted from ClimateWire with permission from Environment & Energy Publishing, LLC. www.eenews.net. 202-628-6500

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