Canadian Underwriter

Catastrophe modelling study presented at U.N. conference suggests little chance of reducing economic losses

March 18, 2015   by Canadian Underwriter

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There is little prospect of reducing economic losses from present levels of US$240 billion per year, suggested preliminary results from a catastrophe modelling study presented at the 3rd U.N. World Conference on Disaster Risk Reduction in Sendai, Japan on Wednesday.

Dr. Milan Simic (left), senior vice president of AIR Worldwide, and Jerry Velasquez, the United Nations Office for Disaster Risk Reduction’s (UNISDR) chief of advocacy and outreach, briefing the media on a new study on economic losses from natural disasters at the 3rd U.N. World Conference on Disaster Risk Reduction in Sendai, Japan. (Photo: UNISDR)

Dr. Milan Simic (pictured left), senior vice president of AIR Worldwide, said in a press release that the study normalized the economic losses from major natural disasters over the last twenty years and found that they oscillate around a baseline value of $240 billion. This is close to the $250 billion to $300 billion estimate of current annual levels of natural and man-made disaster losses presented in the United Nations Office for Disaster Risk Reduction (UNISDR)’s 2015 Global Assessment Report for Disaster Risk Reduction.

Canadian Underwriter reported on Monday that average annual insured losses from natural disasters in the past decade total approximately US$60 billion.

Dr. Simic said in the release that the study “tells us that it is next to impossible to reduce existing levels of economic losses, but that they provide a baseline and a context for improving on key areas of development over the lifetime of the new framework for disaster risk reduction which hopefully will be adopted tomorrow.”

Related: Average annual global losses, threat to lives and livelihoods from natural disasters pegged at US$190 billion: U.N. conference

Responding to the study commissioned by the UNISDR, Jerry Velasquez (picture above), the organization’s chief of advocacy and outreach, said that the study “tells us that the way we do development is the reason why economic losses are so high. Development drivers are stronger drivers of the increase of risks than hazards themselves. In order to limit economic losses in the future, we need to improve urban planning and make economic growth resilient.”

The study recommended a focus on improving the availability of economic loss data, cost benefit analyses of measures such as land-use and urban planning, and the promotion of risk transfer.

The release said that the full global study will be made available in July and will provide a breakdown of economic losses by region. [click image below to enlarge]

Unnormalized total annual economic loss estimates published by Swiss Re, 1995-2013 ($US billions)In a blog on Tuesday, AIR Worldwide said that it used publicly available economic loss estimates from the insurance industry (Swiss Re and Munich Re) for the period 1980-2013, to investigate the economic cost of past disaster events if they were to occur today.

Preliminary results focus on economic loss data for natural hazards reported for the period 1995-2013 by Swiss Re in their annual Sigma report series, the blog said. Unnormalized data – the economic cost of an event as reported in the year that it occurred – exhibited a statistically significant upward trend over time, the blog said. [click image below to enlarge]

Normalized total annual economic loss estimates published by Swiss Re, 1995-2013 ($US billions)However, factors such as population and wealth have risen over the past two decades and inflation, has had its impact on losses, the blog noted. “These must be corrected for, or ‘normalized,’ if we are to compare past and more recent disasters on a like-for-like basis,” the blog said, adding that inflation and gross domestic product (GDP) data from sources such as the World Bank are typically used to normalize economic losses.

After normalization, annual economic losses from natural hazards on a global scale exhibit no significant trend through time. Future work will investigate whether any trends exist in the normalized data set for specific perils and regions, with a particular focus on developing nations, the blog concluded.

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