The true cost of a natural disaster is not only counted in the loss of human lives, but also the impact it has on the long term day to day circumstances that the surviving victims have to deal with. Damage to infrastructure can mean long-lasting effects and subsequent rebuilding projects can sometimes take decades to get things back to where they were before the event.
Of course, the scale and type of natural disaster risks differ greatly depending on where you are in the world, but even Europe suffers fatalities, injuries and clean-up costs due to extreme weather events.
The recent St Jude storm (or Christian as it was called elsewhere in Europe) is expected to cost insurance companies more than €1bn, a figure only surpassed by the cost of February 2010’s Xynthia storm which resulted in a total payout of 1.3 billion.
The storm arrived in the UK on the same day that the patron saint of lost causes has his holy day, and the hurricane-force wind gusts caused widespread damage with at least 18 people being killed across various European countries. A peak gust of wind of 120 mph was recorded in Denmark.
Although the storm set new records for wind speeds at several meteorological stations, the total wind damage was less severe than that of previous ‘big storms’. This was because the storm itself covered a smaller footprint and also hit some less densely populated areas than others before it.
The increase in accuracy of weather forecasts has been credited with helping to keep costs down. The rating agency Fitch suggested that St Jude would have been more costly to insurers if there had been less notice given and policyholders had not been able to take measures to “batten down the hatches”.
A longer lead-in time also means that government agencies and infrastructure companies can alter timetables and prepared for damage limitation exercises in order to minimise disruption and lessen the effects of lost man hours.
Even so, the scale of weather-related events in Europe can still result in significant sums being paid out. Rating agency A.M. Best pointed out that although the effects of the recent storm fell well within most insurers’ catastrophe budgets, the €4bn cost of flooding incurred across Germany and central Europe last June puts this figure into perspective.
Whilst it is too early to accurately predict the cost in both lives and money of the latest disaster to hit the Philippines in the wake of Typhoon Haiyan, the effects of last year’s Hurricane Sandy on the east coast of the USA in late October is estimated to have caused between $30 billion and $50 billion worth of damage.
The tropical storm force winds covered a moving area that was 950 miles in width at some points and the resulting tidal surge hit inland as far as New York’s Manhattan Island. As much of the affected area is built on low lying land, tunnels and subways were severely affected and various infrastructure systems took heavy damage.
All in all it was the second most expensive storm in US history after 2005’s Hurricane Katrina. The effects of high winds and surge tides hitting densely populated areas once again proved to have devastating and costly results.
However, in spite of Hurricane Sandy the total cost of global disasters both natural and man-made in 2012 was actually significantly lower than the previous year’s, according to a report released by reinsurer Swiss Re.
In 2011 a total of $380 billion made it the mostly costly year in history for disasters, outpacing the previous year’s $218 billion by some way. However, the ongoing cost could be even higher as the problems with the Fukushima Daiichi nuclear disaster continue in the wake of the devastating aftermath of the earthquake and tsunami in Japan.
The Swiss Re study also revealed that regional location can have a significantly high impact on the relationship between numbers of people involved in a disaster and the eventual cost. An event such as an earthquake would impact similar numbers of people in Jakarta as it would in Los Angeles, but the American city would see costs around 25 times higher, mainly due to the total amount of working days lost.
When the effects of high winds and tidal surges can be so dramatic, the question as to whether or not they are actually increasing in intensity arises.
There is a great deal of controversy about the whole issue of ‘climate change’ and when insurers want to evaluate a risk they need to take into account all the data that may apply.
Of course, no one actually doubts that the planet’s climate changes, if the planet had not substantially warmed in the past we would still be in the middle of an Ice Age. However, the question as to whether man-made influences are having significant effects is a hotbed of debate.
“Have disaster losses increased due to anthropogenic climate change?” was the title of a 2010 paper in the Bulletin of the American Meteorological Society, by Netherlands researcher Laurens Bouwer. In it he looked at 22 disaster loss studies in various parts of the world and found that each showed an increase in damages from weather-related disasters in recent decades.
Of the 22 studies, 14 concluded that there were no trends in damage after corrections for increases in wealth and population had been made. In all 22 studies, increases in wealth and population were the “most important drivers for growing disaster losses.”
However, as with most aspects of any claims regarding climate change, Bouwer’s review was critiqued. Neville Nicholls of the School of Geography and Environmental Science of Montash University in Australia published analysis in the Bulletin of the American Meteorological Society and claimed that Bouwer’s study did not include the impact of improvements in building codes and weather forecasting.
Nicholls claimed this meant that the damages were actually reduced because of these two important factors and he concluded: “The absence of an upward trend in normalised losses may be due to a balance between reduced vulnerability (from improved weather forecasting and building techniques) and increased frequency or intensity of weather hazards.”