It didn’t take storm Sandy one year ago to interest Munich Re, parent company of Hartford Steam Boiler Inspection and Insurance Co., in climate and meteorological research.
The German reinsurer has been exploring the subject since the 1970s and has been an industry leader in bringing attention to the increasing frequency of natural disasters, the billions of dollars in damages they cause, and their devastating effect on communities and economies.
The total cost of weather-related disasters in North America to insurance companies, and to the economy overall, has trended upward between 1980 and 2011, Munich Re says.
In 2012, Sandy alone cost insurers $18.7 billion — more than the total cost of all hail, thunderstorms and tornadoes combined during the active 2011 storm season that destroyed property from Springfield, Mass., to Joplin, Mo., according to the Insurance Information Institute, a property-casualty research entity.
Last week, as the Oct. 29 anniversary of Sandy’s arival in the Northeast approached, two Munich Re executives spoke with The Courant about climate-related havoc and what to do about it.
One major factor driving up the cost of damage from natural disasters is the value of property at risk. There’s more of it — more property and greater value.
Peter Hoeppe, the head of Geo Risks Research at Munich Re, said the total value of property has increased over time because of greater wealth since the early 1980s, more people, and continued development along coastlines.
In other words, total insurance losses would be trending upward even if there wasn’t an increasing frequency and ferocity of storms.
“But what we also see,” he said, ” … is an increase in the number of the events and in some places — and for some perils — in the intensity of the events, and this cannot be explained by these socio-demographic or socio-economic factors.”
For example, the number of geophysical events, such as earthquakes and tsunamis, has remained relatively flat between 1980 and 2011.
But the same cannot be said for weather-related events: meteorological events such as winter storms, thunderstorms and tornadoes; hydrological events such as floods, landslides and avalanches; and climatological events such as droughts, heat waves, wildfires and cold waves. They have increased.
Individual years vary. This year has been very calm, for example.
But the trend is apparent in Munich Re’s research. The number of annual natural catastrophes has increased fourfold since the early 1980s in North America, from about 50 to about 200, the company says.
Natural fluctuations play a role. Hoeppe referred to the Atlantic “multidecadal oscillation,” the term used for periods of several decades when the North Atlantic Ocean is either warm or cool. The most recent warm period started in 1995 and the most recent cool period lasted from about 1970 through 1994, he said.
“On top of this natural oscillation, we have a continuous slight increase of global ocean temperatures and this is driven by global warming,” Hoeppe said.
Less than two weeks before Sandy hit the Northeast in late October 2012, Munich Re America put out a research paper regarding weather-related catastrophes in North America. In it, the company said that to simply say the trend is a statistical anomaly or part of a cycle misses the point, and that biases must be set aside to find ways to mitigate losses.
“Actually, it doesn’t make any difference for us in our business whether climate change is anthropogenic, it’s caused by greenhouse gases, or it’s a natural bad phase we are in,” Hoeppe said. “What we see is the increasing number of events, increasing losses, and we have to react on that.”
Hoeppe said the solution for insurers is twofold: Everyone can do a better job of preventing damage and adapting to more wild weather conditions, and insurers should be able to price risk appropriately.
In some ways, insurance prices don’t reflect risk. For example, the National Flood Insurance Program is taxpayer subsidized, offering customers premiums that are less than the amount needed to pay claims.
“I think the history shows this type of subsidization is not good at all for everyone — for the consumer, for the whole insurance industry, and also for the government at the end,” said Peter Raab, head of Property Underwriting at Munich Re America. “It created a significant deficit in the government pocket.”
There’s also a lot of work to be done in making homes and buildings more resistant to disasters.
“More stringent building standards means the price of the house will go up … it puts a burden on the people who want to build a house, and this certainly is something not welcome by many people and not by the political decision makers,” Hoeppe said. “People may perceive it like a tax or something they have to pay. So, they have less money to spend on other things, and this is not a popular thing.”