Weather Perils
Weather Perils

Climate-Related Weather Perils on the Rise

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The Swiss Re Institute recently released a report highlighting the intensifying nature of four climate-related weather perils: floods, tropical cyclones, winter storms in Europe, and severe thunderstorms. These perils now cause annual losses of USD 200 billion and are said to be “intensifying to varying degrees.”

In a blog post by Mohit Pande, Chief Underwriting Officer Property, it was noted that this intensification “boosts their potential to make larger contributions to future property losses.”

A Multifaceted Approach to Mitigate Risks

The report also emphasizes the importance of a multifaceted approach combining climate mitigation, adaptation, and financial protection to prepare society for increasing loss risks. This approach aims to equip public and private sector leaders with decision-making tools and better support recovery efforts when disasters strike.

For years, Swiss Re has been tracking natural catastrophe loss trends driven mainly by human factors such as economic growth, urbanization, and the accumulation of valuable assets in vulnerable areas. However, post-pandemic inflation has also played a crucial role in lifting repair costs from significant events like hurricane Laura, winter storm Uri, and hurricane Ian.

Changing Climate and Losses

While the contribution of a changing climate to natural catastrophe losses has been limited so far, Pande notes that this is likely to change.

Some regions, particularly Asian economies like Indonesia, Thailand, China, India, and the Philippines, are particularly vulnerable to hazard intensification. These economies also have significant insurance protection gaps, leaving them less able to recover when catastrophes strike.

In Europe, floods like those that struck Germany and elsewhere in 2021 currently account for about half of annual weather-related economic losses. These events are expected to grow more extreme and frequent as warmer temperatures fuel heavier precipitation.

Weather Perils Addressing Hazard Intensification

Pande emphasizes that climate mitigation, including greenhouse gas emission cuts to contain global temperature increases, is crucial in addressing the forces of hazard intensification. As costs associated with climate change start to impact consumers and hazard intensification becomes a driver of future economic losses, the industry must adjust its models and underwriting to keep pace with evolving risks.

Focused underwriting can support clients’ climate-positive transitions, while parametric insurance leverages strengths of the public and private sectors to protect more people in exposed regions. Re/insurers also have a wider role to play by deploying financial resources toward long-term investments in projects suited for more volatile future weather.

Continued Focus on Mitigation and Adaptation

The industry recognizes the importance of addressing climate-related risks not only through mitigation but also through adaptation strategies. Pande emphasizes the need for the industry to capture the impacts of hazard intensification in its models and underwriting processes to effectively manage evolving risks.

Supporting Climate-Positive Transitions

Focused underwriting can support clients’ transitions to climate-positive practices, helping them mitigate risks and adapt to changing weather patterns. Parametric insurance, which leverages the strengths of both public and private sectors, can play a crucial role in protecting more people in vulnerable regions.

Role of Re/Insurers in Long-Term Investments

Re/insurers can also contribute to long-term resilience by deploying financial resources toward investments in projects suitable for future weather volatility. By aligning investments with climate goals and supporting sustainable development, the industry can help build more resilient communities and economies.

In conclusion, the report underscores the urgent need for comprehensive strategies to address the intensifying impacts of climate-related weather perils. By combining climate mitigation, adaptation, and financial protection measures, society can better prepare for and mitigate the increasing risks of natural disasters.