From a natural catastrophe perspective, 2012 appears to have been a year of bad news, (relatively) good news. Globally, losses were significant lower than in 2011, when earthquakes in Japan and New Zealand and floods in Thailand contributed to record losses of $400 billion (insured losses of $119 billion), according to Munich Re. But it was a terrible year for catastrophe losses in the United States, due mainly to Superstorm Sandy, which Munich Re estimates will account for about $25 billion in insured losses and about $50 billion in overall losses.
Because of Sandy and other severe weather-related catastrophes, Munich Re reported in its 2012 Natural Catastrophe Year in Review, the U.S. accounted for a higher proportion of global natural catastrophe losses than usual in 2012. According to Munich Re, natural catastrophes caused $160 billion in overall losses and $65 billion in insured losses worldwide, with approximately 67% of overall losses and 90% of insured losses attributable to the U.S. (the respective averages are 32% and 57%, the insurer reports). Munich Re's long-term comparison shows that 2012 losses were above the 10-year average of $50 billion for insured losses and slightly below the average of $165 billion for overall losses.
Until Sandy hit, the big catastrophe news in the U.S. for 2012 was this past summer's drought and record high temperatures. Nearly half of the country's arable acreage was hit by the 2012 conditions, Munich Re says, reporting that overall agricultural crop losses in the U.S. totaled about $20 billion in 2012. Approximately $15 to $17 billion of the losses are covered by the public-private multi-peril crop insurance program -- the biggest loss in U.S. agricultural insurance history, according to Munich Re.
Records notwithstanding, Munich Re contends that extreme weather events are becoming more common and that new strategies around infrastructure and risk assessment and pricing are essential. Tornadoes also did their share of damage here. The most severe tornado outbreak, which occurred early in March, caused $5 billion in total losses (50% of that was insured), Munich Re says.
"The heavy losses caused by weather-related natural catastrophes in the USA showed that greater loss-prevention efforts are needed. It would certainly be possible to protect conurbations like New York better from the effects of storm surges. Such action would make economic sense and insurers could also reflect the reduced exposure in their pricing," Munich Re Board member Torsten Jeworrek urged in a company statement.
[For more discussion about the likelihood of more extreme weather events, check out Extreme Weather in the US: Is It Climate Change or a Historical Pattern?]
Added Professor Peter Höppe, head of Munich Re's Geo Risks Research:
"These two catastrophes clearly demonstrate the type of events we can expect to contend with more often in the future. It is not possible, of course, to attribute individual events to climate change, each theoretically being possible in isolation. However, numerous studies assume a rise in summer drought periods in North America in the future and an increasing probability of severe cyclones relatively far north along the U.S. East Coast in the long term. The rise in sea level caused by climate change will further increase the risk of storm surge. And, with no apparent prospect of progress in international climate negotiations like those held recently in Doha, adaptation to such hazards using suitable protective measures is absolutely essential."
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio