Even though Covid-19 still dominates global news cycles, we must not neglect other serious risks affecting our world, most notably climate change.
The ongoing consequences of climate change on the planet remain evident: 2019 was the second warmest year on record; and the first half of 2020 was the second warmest to date. Sea levels have risen by some 20cm in the last century. Researchers are closely studying the indelible footprint that climate change is leaving on Earth, and how higher global temperatures translate to a higher rate of water evaporation and result in increasingly unpredictable and extreme weather patterns.
Natural catastrophes
Based on Munich Re records, since 1980 we have observed a global increase in inflation-adjusted weather catastrophe losses for various reasons, mainly due to increasing levels of destructible wealth, but also hazard activity, depending on the region and peril.
In Asia Pacific during the same period of time, only around 12% of these weather disaster losses were insured. Apart from Japan and Australia which have the highest insurance penetration, the share of insured weather disaster losses in the rest of Asia Pacific was just 5%. With such low levels of insurance, much of these losses are still funded from the non-insured’s own pocket, leaving societies and economies more vulnerable in the aftermath of such events.
During the first half of 2020, natural catastrophes have produced overall losses of around US$68 billion ($92.3 billion), a slightly lower figure than the 30-year average. Insured losses, at approximately US$27 billion, were higher than usual (US$20 billion) due to the large proportion of extreme weather losses in North America. It has been Asia Pacific, however, that has experienced some of the worst natural catastrophes this year so far.
In May, Cyclone Amphan caused extreme losses in India and Bangladesh. High wind speeds, extreme precipitation, and a metre-high storm surge caused extensive damage — thousands of houses were destroyed, and millions of people were left without electricity in South Asia. Some 135 people lost their lives and several million people were evacuated. The Covid-19 crisis has added another complication as fewer people were able to enter the shelters due to social distancing restrictions. With total losses of approximately US$11.5 billion, Cyclone Amphan was one of the most expensive cyclones in the region on record.
In China, heavy monsoon rainfall from June led to severe river flooding of hundreds of rivers in many parts of the country. More than 100 people lost their lives and it is not yet possible to make a reliable estimate of the damage as the floods continued well into July and the costs are still being counted but will most likely run into the billions.
Since then, two severe Typhoons have caused significant losses in Korea and Japan. South Korea experienced a rare double-hit with two typhoons making landfall within only one week. On Sept 3, Typhoon Maysak hit the coastline as a category 2 Typhoon with wind gusts of up to 140kph just west of Busan. Only some days later, Typhoon Haishen approached South Korea just north of Busan after churning along South Japan and causing large power outages in Okinawa and the Kyushu region.
While the overall typhoon activity in the Western North Pacific has been below average so far this year in terms of numbers of tropical storms, this shows that also a below-normal season can have individual destructive typhoon hits. And, let us not forget that although scientific research indicates that we are unlikely to see a rise in the overall number of tropical cyclones due to climate change we in future, studies are suggesting that the proportion of severe storms is likely to increase. There are also indications that such storms are more likely to bring torrential rain, like Typhoon Hagibis that caused overall losses of US$17 billion Japan last year.
Bushfires in Australia in the 2019–2020 summer season also generated unprecedented losses. Fuelled by an exceptionally severe drought and high temperatures, the annual bushfire season began much earlier than usual. Many fires flared out of control and burned for an extended period of time. Although bushfire risks were higher due to natural climate oscillations during the southern hemisphere summer last year, studies have suggested that climate change is driving the increase in the volume of bushfire occurrences in Australia in the long term.
Vulnerable societies
So far, climate change has not been a systemic risk, but if global warming continues unabated, it will be.
Unlike a pandemic, natural catastrophe losses are invariably regional in nature, even if the losses involved are immense and include the loss of lives. They are, nevertheless, hitting increasingly vulnerable societies and economies, as well as disrupting global and regional supply chains. Since 1990, global trade has increased by 350%, twice as much as global economic output. Economists see this as an indicator of increasing interdependencies. In 2011, floods in Thailand resulted in a global shortage of computer parts for hard drives, as many of the key suppliers were located in the flooded areas north of Bangkok. In the same year, the earthquake in Japan and the subsequent nuclear accident at Fukushima resulted in a global paint shortage for certain colours of cars as production of a special pigment had to be temporarily halted following the catastrophe.
What’s next
The worrying combination of climate change’s growing influence on weather-related disasters in the region and the fact that its consequences can now only be minimised, rather than prevented, is a grave concern. We know that from a political and social perspective we must mitigate climate change as much as possible and prepare economies and societies for its consequences, but climate risk is long-term in nature and there will never be a quick fix ‘vaccination’ to help prevent it. It will still be impacting the planet and future generations long after Covid-19 has been brought under control. Its impact could result in systemic risks and become even more far-reaching in the long run than those of a pandemic.
In the face of rising sea levels and increasing floods, many companies in the financial sector — such as banks and asset managers — are now scrutinising the sustainability of their investments, property portfolios and long-term business to gauge whether they will maintain their value and remain sustainable in the future. Others are diversifying supply chains in order to reduce their vulnerability to the consequences of extreme regional weather events.
Reinsurers started responding a long time ago to help their clients in Asia Pacific better identify and manage exposures to extreme weather events and natural catastrophes. Significant resources have been invested into specialist research to analyse the regional effects of climate change which helps to more accurately assess the changing risks of natural hazards in the region.
Evidently however, more needs to be done through collaboration between the private and public sectors and the different markets. Amid the significant turmoil the world faces from the global pandemic, we cannot afford to slow our momentum in tackling the evolving challenges that climate change presents.
Roland Eckl is chief executive, Asia Pacific (Japan, India, Korea, Singapore and Southeast Asia), of Munich Re
