Swiss Re: Climate change: the other global crisis
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Many Hollywood blockbusters have been built around natural catastrophe events. However few people ever imagined that a virus could effectively shut down our lives for over a year!
While the COVID-19 pandemic has dominated the headlines, the threat of climate change cannot be forgotten and must be addressed. While millions of people were dealing with the pandemic, they also faced the challenges of severe weather. According to the Swiss Re Institute's annual sigma report on natural catastrophes, these types of events caused global economic losses of USD 190 billion in 2020. Worryingly, only 43% were covered by insurance, meaning many people were left struggling to put their lives back together. In LatAm, only 18% of natural catastrophe losses was covered by insurance over the last decade.
Of the USD 190 million of global economic losses, 71% were due to what the insurance industry calls 'secondary perils'. What's a secondary peril? They are natural catastrophes that typically generate losses of low to medium magnitude, but that can happen relatively frequently. These include “independent secondary perils” such as severe convective storms (including thunderstorms, hail and tornadoes), drought, wildfire, snow, flash floods and landslides. They also include consequential losses from primary perils, for instance from heavy rains in the wake of a tropical cyclone, a storm surge induced by a winter storm, or fire outbreak after an earthquake. In recent years there has been a rise in losses associated with these risks, which have increased due to rapid development in areas exposed to severe weather conditions.
According to the United Nations, in 2020, 321.2 million people lived in the large urban areas of Latin America and the Caribbean and, between 2020 and 2035, the urban population is expected to increase by 53 million. This trend suggests that exposures to future loss scenarios for both primary and secondary perils will continue to grow in the region. An unfortunate reminder of this was the landfall of two powerful category 4, Eta, and category 5, Iota, hurricanes in 2020. Nicaragua, Honduras and Guatemala were heavily hit, and their recovery continues to be slow, also due to the low penetration of insurance in the region.
The main secondary peril in Latin America is river flooding, flash flooding and surface water flooding (which occurs when urban drainage systems are overwhelmed) after a hurricane. Cumulative insured losses from floods in the region from 2011 to 2020 totaled USD 17.2 billion (2020 prices) of which only 7.2% were covered by insurance.
These are just a few examples of the economic impact that natural catastrophes have. But there are ways for people to financially protect themselves: communities that are insured against natural disasters bounce back quicker than those that do not. Insurance plays a key role after a natural catastrophe.
We know that affordability, product design, accessibility, lack of awareness, or poor understanding of the true value of insurance products are challenges we need to address. That is why we work closely with our insurance and broker partners, to improve the customer's journey and provide easier access to more simple products. Put simply, increasing access to insurance is a win/win situation. It's a positive for our industry but also for the people of Latin America.
While insurance helps make societies more resilient, it is also important to take actions to mitigate the effects of climate change and avoid reaching an irreversible turning point. That is why public private partnerships are essential to drive change to a more sustainable future.
If a virus can cause a health and economic crisis like the one we currently face, not taking action against climate change will pose more severe and irreversible consequences.