The year in numbers: how expensive was the extreme weather of 2018?
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Compared to its predecessor, 2018 may have seemed timid in terms of natural catastrophes. But don't let appearances fool you – last year became the fourth costliest year in insured losses, according to the Swiss Re Institute's latest sigma. The combined insured losses of 2017 and 2018 reached USD 219 billion, the highest ever for a consecutive two-year period.
Wildfires, hurricanes, typhoons and other severe weather events contributed to the USD 165 billion in total economic losses worldwide. With just over half of that (USD 85 billion) insured, we are now looking at a protection gap of USD 80 billion. According to sigma, explanations for underinsurance include lack of consumer risk awareness, a poor understanding of the catastrophe cover available, and hesitation on the side of the industry to provide cover where risk assessment is uncertain.
But what specifically is making us more vulnerable to disasters? The temperatures are getting warmer and the trend of living in more urbanised communities where our assets are highly concentrated (and exposed), has been on the rise. Compared to two decades ago, the likelihood of extreme weather affecting a densely populated area is significantly higher, which means we are less resilient than before.
Despite the rise in secondary perils, single natural catastrophe events continue to cause vast devastation and disruption to the affected areas. The costliest events of last year included California's Camp Fire, Hurricane Michael and Typhoon Jebi in Japan. Each one of those impacted local infrastructure and interrupted business activity in the area. Even in the case of existing coverage, the financial strain of each natural disaster is usually substantial enough to linger on for several years.
Without a doubt, the speed of getting to the funds to start the recovery efforts is a much-needed lifeline. Parametric (or index-based) products – often simpler and more transparent in their wording – may lessen the stress of business interruption immediately after a Nat Cat event, increasing our resilience after natural disasters.
Find out more about Swiss Re Corporate Solutions parametric offerings.
Learn more about our solutions on closing the protection gap.