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Drought events increasing, but still an underestimated risk: Munich Re


March 7, 2013   by Canadian Underwriter


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Droughts are increasingly becoming one of the most destructive of natural catastrophes worldwide, with the number of loss-producing droughts doubling since the 1980s, but it remains an underestimated risk, notes a new report from Munich Re.

DroughtStill, droughts remain an underestimated risk, notes the company’s new publication, Topics Geo 2012. Droughts are especially catastrophic because they often create conditions for wildfires, disruption of waterway traffic and can have a negative impact on the power generation industry, the report notes.

Although droughts seem less “spectacular” than tornadoes, hurricanes or other such catastrophes, the impact can also be longer lasting, in terms of things like food prices and often famine, the report states. Population growth worldwide also exacerbates the negative effects of drought, Munich Re says.  

“The Intergovernmental Panel on Climate Change (IPCC) expects heatwaves and droughts to increase in many regions of the world over the coming decades, in the course of which droughts will become one of the most destructive natural catastrophes,” Peter Höppe, head of Geo Risks Research at Munich Re noted in a statement.

Notably, the Corn Belt in the Midwestern United States was hit hard by drought conditions last year that typically only occur once every 40 years, Munich Re suggests. Agricultural losses from the drought there amount to about $20 billion ($15 billion insured), the company says.

The drought there was mainly due to record high temperatures and a dry winter, the report suggests.

“The U.S. agricultural insurance system is based on dividing the risks between the state and the insurance industry and in this case proved its worth,” Torsten Jeworrek, a member of Munich Re’s Board of Management noted.

“It will enable farmers to return to productivity quickly and avert bankruptcies of farmers and even agricultural banks. In view of the mounting drought risks confronting other countries, such an exemplary risk management system takes on great significance.”

Droughts in Somalia and Russia have also been extreme in recent years, the report suggests.

The full report is available through Munich Re’s website.


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