In 2009, natural catastrophes claimed 9,000 lives worldwide andcost insurers $22 billion, even though the year was considered tobe a low-loss year compared with previous years.

Asia was hardest hit: typhoons and earthquakes caused the mostfatalities in the region, with losses for the insurance industrytotalling around $2.4 billion.

The year’s biggest insured losses were the result of storms. Intotal, six natural catastrophes generated losses of more than $1billion each.

• The winter storm “Klaus”, for example, which raged throughFrance and Spain in January 2009, cost insurers more than $3.4billion.

• The 2009 hailstorm “Wolfgang,” which swept across CentralEurope at speeds up to 130 km/h, dealt a $1.2 billion blow ininsured losses.

• In the United States, heavy storms with wind speeds of up to145 km/h inflicted losses of $1.35 billion.

IMMENSE ALLIED PERILS

In addition to primary hazards like storms, natural phenomena,also known as allied perils, can cause extensive property damage.Major global allied perils include floods, earthquakes, hailstorms,tornadoes, snow and ice storms, as well as droughts and brushfires.

More than half the loss burden from natural catastrophes in 2009was attributable to allied perils. By comparison, over the past 30years, they constituted only about 30 percent of all naturalcatastrophes.

In recent years, insured losses from allied perils have oftenamounted to $10 billion, thus exceeding the 30-year average of $6.5billion. (See accompanying graph).

CLIMATE CHANGE: THE BRUTAL CONSEQUENCES

Global warming is happening—and it is something risk managers ofboth the public and private sectors cannot ignore. In fact, thewarmest 10 years on record since 1850 (when temperature data wasfirst recorded) have all been after 1996.

The concentration of greenhouse gases in the atmosphere farexceeds the levels observed over the past 100,000 years. Even if wecould fully curb global greenhouse gas emissions now, we wouldstill have to cope with climate change.

The longer we wait to cut greenhouse gases, the greater climatechange will be, although its effects will differ markedly dependingon the location. Populations in many regions are thus faced withthe ever greater and costlier challenge of protecting assetsagainst weather-related risks. These include more frequent anddevastating storms, floods, droughts and other naturalcatastrophes. There are also rising sea levels, crop failures andwater shortages.

For Europe alone, the loss burden from storm flooding on theNorth Sea coast is predicted to more than quadruple, soaring froman annual average of 600 million euros to 2.6 billion euros by theend of this century, according to some estimates.

Developing countries are the most vulnerable and the leastprepared. In its 2009 study “Shaping climate resilientdevelopment,” the Economics of Climate Adaptation working groupestimated that by 2030, climate risks in developing countries couldgenerate losses of up to 19 percent of gross domestic product. (TheECA is a partnership between the Global Environment Facility,McKinsey & Company, Swiss Re, the Rockefeller Foundation,ClimateWorks Foundation, the European Commission, and StandardChartered Bank.)

RISK MANAGEMENT IS CRUCIAL

For the decision-maker, the challenge in developing a riskmanagement approach is striking the right balance between lossprevention and risk transfer measures. In practice, collecting andanalyzing data—essential for making an informed choice—requires ahigh level of teamwork between the relevant public andprivate-sector entities. For this reason, appointing a centralperson at a government level to lead and coordinate these effortsis recommended.

As a result of climate change, risks are not only becomingincreasingly complex and more interlinked, but coverage againstthose risks is also becoming increasingly costly and complex. Thismakes public-private partnerships essential in order to provideappropriate coverage to local populations that are vulnerable tonatural catastrophes.

Many of these solutions can be replicated elsewhere and adaptedto the specific risk exposure of other regions. But since noapproach can be applied in all situations, constant innovation isnecessary to protect local populations against the unforeseeneffects of climate change. The specialized resources and technicalknow-how of public and private institutions can make an importantcontribution to these efforts.

INSURERS LEND A HAND

Innovative insurance solutions integrating partnerships in thepublic and private sectors can provide affordable options toprotect against financial consequences before a catastropheactually occurs—and give populations more resilience in cases ofemergency.

The ECA working group also came to an encouraging conclusion.Case studies in eight different regions around the world, rangingfrom Maharashtra, India to Florida and Northern England, show thatup to 68 percent of expected losses resulting from climate changecan be prevented by cost-efficient changes of approach.

These include improved drainage and irrigation systems, floodbarriers and tighter construction codes, vegetative buffer zonesand campaigns to raise catastrophe awareness.

Most importantly, these provisions can be implemented at atenable cost and achieve verifiable benefits.

While preventative measures are keys to risk management, nosociety can afford to prevent losses from every conceivable riskevent. This is especially true for risks that are highly unlikely,if they ever occur at all. Risks can only be averted at exorbitantcost.

Annual losses from hurricanes in southern Florida, for example,are expected to reach a staggering $33 billion by 2030, whichcorresponds to around 10 percent of the region’s entire grossdomestic product.

At the same time, a significant portion of the losses—about 40percent—are virtually impossible to prevent cost effectively.

EXPLOITING SYNERGIES

Synergies can be achieved through a coordinated balance betweenprevention and insurance. Insurance is an indispensable componentof any adaptation strategy.

It is equally important, however, to keep insurance premiumsunder control by keeping residual risk to a minimum throughpreventative measures. Only then can exposure to storm risks bereduced, through improved mitigation measures against stormfloods.

At the same time, this can ensure that risk transfer options forless common, more severe storm events remain affordable. Reasonableinsurance premiums then become a strong incentive to invest inpreventative measures that promise economic benefit.

David Bresch is director, sustainability and emerging riskmanagement, with Swiss Re, Zurich. He may be reached at [email protected].