The world’s natural disaster insurance costs in 2015 hit a 6-year low, according to a study released on Monday by German reinsurer Munich Re. Surprisingly, el Niño lowered global costs by hampering the development of hurricanes in the North Atlantic, which usually cause some of the priciest claims for the insurance industry. In 2015 insured losses totaled $27 billion while in 2014 they hit $31 billion; the 10-year average was $56 billion.
But paid claims are one thing; real economic impacts (including rejected claims and damage to uninsured property) were much larger and impossible to accurately quantify. Munich Re’s natural disaster review estimated that overall economic damage fell to $90 billion last year from $110 billion in 2014, also well below the 10-year average of $180 billion. But there are so many factors at play that there is a wide margin of error (with considerable upside).
For example, disastrous flooding of the Whanganui river in New Zealand in June cost insurers there some $33.7 million in claims. However, Whanganui Mayor Annette Main recently said many affected residents were still struggling with their insurance company to get compensated, while others had reached an agreement with insurers but were stuck waiting for builders to start working on their property. And in September, the government more than doubled an original estimate of the overall economic damage of the flooding to the region to $185 million. (Of this toll, repairing roads and public infrastructure – which are not covered by private insurance — accounts for the lion’s share.)
And the exact costs are still unknown, since some are ongoing, and for others there is simply insufficient data. In fact, last month Allan Cook, manager of the Whanganui Flood Management Review Group, said that it will take 2-3 years to complete investigations of the flood. And there will be an additional taxpayer price tag for preventative measures in the future, since there are currently no allocations for capital expenditures in Palmerston North’s long-term municipal plan.
However partial and imperfect it is, natural disaster insurance will factor in larger from now on as part of the Paris climate agreement. Three “risk pooling” initiatives — the African Risk Capacity, the Caribbean Catastrophe Risk Insurance Facility, and the Pacific Risk Pool – are financed with interest-free loans from wealthy donor countries to help poor member states’ improve their natural disaster response capacities. A key feature is that recipient countries are required to develop contingency plans before they are allowed to purchase coverage under the schemes. That should save lives as well as minimize economic losses.
And as global insurance coverage rises, the total payout of claims will too — although chances are that insurers’ profits will rise most of all.