Canadian Underwriter

Natural Catastrophes: An Increasing Trend?

December 1, 2000   by Donald Keefe, manager of engineering property and special risks

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In addition to the earthquake disasters of last year, there were other major natural catastrophes including Cyclone 05B in India, massive flooding and landslides in Venezuela, Typhoon Bart in Japan, and winter storms Lothar and Martin in Europe.

Some have suggested this is just an unfortunate coincidence. But careful examination of statistics indicates the frequency and severity of natural catastrophes is increasing. For example, the number of loss events from natural hazards registered by Munich Re for 1999 was 755, exceeding the previous record of 702 in 1998 and the long-term average of 600. Economic losses in 1999 totaled approximately US$ 100 billion, second only to the losses incurred in 1995 due in large part to the Kobe earthquake in Japan. Most of the losses resulted from the flooding in Venezuela (US$ 15 billion), earthquakes in Taiwan (US$ 14 billion) and Turkey (US$ 12 billion), and windstorms Lothar and Martin in Europe (US$ 11 billion).

Insured losses totaled approximately US$ 22 billion in 1999, the second highest figure recorded in the 1990s, behind only 1992 due mainly to Hurricane Andrew. Windstorms Lothar and Martin in Europe produced the largest insured losses (about US$ 5 billion), followed by Typhoon Bart in Japan (US$ 3 billion) and Hurricane Floyd in the United States (US$ 2.2 billion).

Increasing trend

The scientists in Munich Re’s Geoscience Research Group observed in the early 1990s an increasing trend over the last half of the 20th century in the economic and insured losses from “great natural disasters”. A natural catastrophe is considered “great” by Munich Re “if the ability of the affected region to help itself is distinctly overtaxed, making interregional or international assistance necessary”. This is usually the case when thousands of people are killed, hundreds of thousands are made homeless, or when a country suffers substantial economic losses.

The Figure 1 chart (next page) shows the economic and insured losses from great natural catastrophes over the last 50 years, all adjusted to 1999 values. There were ten natural catastrophes classified as great in 1999, totaling US$ 70 billion in economic losses. The trend lines in the chart show a pronounced increase in catastrophe losses in the 1990s.

Causes identified

Four causes of this disturbing trend have been identified:

Continual increase in human population and urban development, often in areas exposed to natural hazards;

Modern industrial societies are more susceptible to damage;

Increased insurance density in the area of natural hazards, particularly in economies with high per capita income; and

Accelerating deterioration of natural environmental conditions resulting from human impact on the climate.

Pop growth & urbanization

According to the United Nations (UN), it took 45 years for the world population to increase from 2 billion in 1930 to 4 billion in 1975. Over the next 50 years (1975-2025), total population is forecast to double again to over 8 billion people.

The urbanization of this growing population will be a major problem as most great natural catastrophes occur in cities or densely populated regions. According to UN figures, just under 30% of the world’s population lived in cities in 1950. That figure has risen to almost 50% today and is forecast to be over 60% in 2025. Moreover, this urban development is often in areas prone to natural hazards, such as flood plains, coastal regions and earthquake zones.

An excellent example of this problem occurred on August 17, 1999 when an earthquake of magnitude 7.4 struck Izmit in Turkey near Istanbul. This populous, industrial area had grown by about 3 million since 1990. The corresponding construction boom resulted in substandard construction quality not able to withstand seismic forces. As a result, about 300,000 houses were badly damaged or collapsed, killing about 17,200 people and leaving approximately 600,000 homeless for months.

Modern society vulnerable

The impact of major earthquakes on modern industrial society is well illustrated by the magnitude 7.2 earthquake that badly damaged Kobe, Japan, a densely populated industrial area and port on the shores of Osaka Bay, in 1995. The electrical power supply was down for one week and the telephone network was down for two weeks. Water supply was restored within five weeks, but it took five months to restore the gas network. Major transportation routes suffered severe damage as well. And, it took four months to re-establish the Shinkansen railway, and two years to rebuild the Hanshin automotive expressway.

Rich countries with large economies suffer the majority of the economic losses, in absolute terms, from natural catastrophes. However, poorer countries suffer a higher economic burden as they are less able to absorb the losses. In fact, the economic loss in poor countries is the highest in terms of percentage of gross national product (GNP). This is supported by a Munich Re study of natural catastrophes covering 1985 to 1999. The study looked at economic and insured losses, with all countries divided into four income groups, the main criteria being per capita GNP (see chart Figure 2).

The study found that rich countries with the highest per capita GNP (group 1) accounted for 57% of the total economic losses from natural catastrophes, which equates to only 2.5% of the nominal GNP. In contrast, poor countries with the lowest per capita GNP (group 4) accounted for 24% of the total economic losses, which equates to 13% of the nominal GNP.

The distribution of insured losses from natural catastrophes is even more lopsided since Group 1 (rich) countries accounted for 92% of the insured losses. Poor countries are, therefore, hit doubly hard since their low insurance density provides little relief for heavy economic losses.

Global warming

The world’s average global temperature increased steadily over the last 100 years. The source of this temperature increase is generally accepted to be the greenhouse effect, whereby greenhouse gases such as carbon dioxide trap heat radiating from the surface of the earth, increasing the temperature of the atmosphere.

Unfortunately, there appears to be a direct relation between the increase in global temperature and the rising number of extreme atmospheric events. This is because higher air and water temperatures lead to higher rates of water evaporation, resulting in increasing intensity of precipitation and tropical cyclones. The Kyoto Protocol in December 1997 was the first international agreement that set target limits on greenhouse gas emissions. However, even if the Kyoto Protocol is fully ratified and implemented in 2002, it will take several years before the global warming trend is halted.

Beware, danger ahead

We appear destined for increased economic and insured losses from natural catastrophes. Barring some unforeseen calamity, the world’s population and urban density will continue to grow, leading to higher vulnerability to great natural catastrophes. Many of these urban areas are already in hazard-prone regions. These demographic issues alone are sufficient cause for concern about the impact of natural hazards. Add in the severe consequences of global warming, including larger and more frequent storms, and we have every reason to be alarmed about what lies ahead.