Weather-Related Insurance Losses Doubled in '07

Sun, 2007-12-30 12:38Ross Gelbspan
Ross Gelbspan's picture

Weather-Related Insurance Losses Doubled in '07

Losses to insurers from natural disasters nearly doubled this year to just below $30 billion globally after an unusually quiet 2006, a leading reinsurer said, from winter storms in Europe, flooding in Britain and wildfires in the U.S.

Munich Re also warned that climate change could mean a growing number of weather-related catastrophes in coming years.

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Proves that there are many economic benefits to dealing with the issue of global warming unlike what the typical deniers will try to lead us to believe - that reducing CO2 will destroy the economy.

Do we have any trend data on insurance payouts for weather-related losses? It would be interesting to see if there is an upward trend. Of course, you'd expect an upward trend because people are always building new houses and that increases the total value of property at risk. Hmm, this might be difficult to disentangle...

The insurance industry was one of the first to start worrying about AGW. I recall hearing something about it years ago, long before Katrina or any of the other "big ones". There was speculation about what would happen if the hurricane & tornado zones started expanding northward. Clearly there was enough of a trend to wake them up to the potential costs back then.

Never mind that none of these payouts for insurance claims can be credibly linked Global Warming, any more than they can be attributed to evil spells by witches -- but they chose, by their own admission, 2006, an unusually low year for payouts as a basis for comparison. They're called natural disasters for a reason.

But before you start crying for poor reinsurance companies like Munich Re, have a look at this:

"Reinsurance: Earnings up 17.7%
The Munich Re Group's reinsurance business performed successfully in the first nine months of 2007. Although the operating result fell by 13.0% to €3.2bn (3.7bn), reinsurance still contributed €2.8bn (2.4bn) to the Group profit, of which €314m is apportionable to the special tax factor.

The strong performance was due not only to the very good investment result, but also to underwriting business. "Our strict orientation towards risk-adequate prices and conditions in underwriting is paying off and makes our broad basic business very profitable", said Jeworrek."
http://www.munichre.com/en/press/press_releases/2007/2007_11_05_press_release.aspx

Whaaaaaat?!! "risk-prices and conditions"?!! You mean insurers have a vested interest in playing up risks to justify higher premiums?

Who'd have thought? And yet it is a ploy that is making companies like Munich Re record profits.

Of course, none of this has escaped the attention of self-described Pulitzer winner Gelbspan ... oh, wait, actually it has. Never mind.

Rob, after we dispense with the useless sarcasm, there are a few tidbits of illogic remaining. First, nowhere does the article assert that any specific disaster is attributable to AGW. There's a huge difference between specifically attributing individual instances to a cause and statistically attributing collective trends to a cause. If somebody downwind from coal plant comes down with lung cancer, they have little chance of prevailing in a lawsuit against the coal plant operator. That doesn't mean that air pollution doesn't cause lung cancer.

Second, you misattribute the thrust of the article when you talk about Munich Re's profits. Profits can continue to increase even as payouts increase -- if the reinsurer raises premiums. Thus, in the absence of data on premiums, your data is irrelevant.

Moreover, you fail to note the connection between the small number of weather-related disasters in 2006 and the big profits in 2007. There's a direct link there.

Lastly, you suggest that reinsurers are playing up risks to justify higher premiums. If they were selling to consumers or politicians, this might make sense, but they sell to primary insurance companies, who employ their own staff of risk assessment experts. PR fluff from reinsurers will not have the slightest impact on the number-crunchers at the insurance companies.

Chris you are a breath of fresh air! Excellent response. Although I doubt that any of your thoughtful points will register with the correspondent, it will keep other visitors here from being caught by these silly posts!

"First, nowhere does the article assert that any specific disaster is attributable to AGW."

True enough. It is merely blatantly insinuated. I guess this line was just thrown in for kicks:

"Munich Re also warned that climate change could mean a growing number of weather-related catastrophes in coming years."

"There's a huge difference between specifically attributing individual instances to a cause and statistically attributing collective trends to a cause."

Of course, since the latter is absolutely meaningless. Corelation does not imply causation.

"If somebody downwind from coal plant comes down with lung cancer, they have little chance of prevailing in a lawsuit against the coal plant operator. That doesn't mean that air pollution doesn't cause lung cancer."

It doesn't mean it does, either -- especially if your litigious victim smoked five packs a day. Corrrelation does not imply causation.

"Profits can continue to increase even as payouts increase -- if the reinsurer raises premiums."

Not if they don't sell any insurance policies to begin with. Let's just say the popular acceptance of the notion of a theoretical Global Warming apocalypse is good for business.

"Moreover, you fail to note the connection between the small number of weather-related disasters in 2006 and the big profits in 2007. There's a direct link there."

Granted, I "failed" to note a lot of other things, such as what I had for lunch that day. No, I prefer to stick to that which is relevant to the argument. My bad.

"PR fluff from reinsurers will not have the slightest impact on the number-crunchers at the insurance companies."

Right, since their number one priority is passing the savings on to their customer, and driving the hardest bargain on their customer's behalf. And if reinsurance is too expensive, then they simply won't pay for it, damn it!

And here I thought you wanted to dispense with "useless sarcasm"?

Weather-Related Insurance Losses Doubled in '07

Losses to insurers from natural disasters nearly doubled this year to just below $30 billion globally . .

The article is unclear on seperating between weather-related and natural disasters.

The largest natural disaster, according to Munich Re, in 2007 was the 6.8 magnitude earthquake in July in Japan, with $12.5 billion in damage.

http://www.thestar.com/Business/article/289074

2006 was also a very quiet year, storm-wise, so absent better data, it is possible that 2007 was not out of the norm, in spite of what the headlines implies.

Obviously the article is about weather-related disasters. Why are you trying to drag an earthquake into it?

...The costliest disaster for insurers was a Jan. 18-19 winter storm, dubbed Kyrill in German-speaking countries, which killed 49 people, caused transportation havoc, damaged property and tore down power lines across a broad swath of northern Europe.

The storm resulted in insured losses of about $5.8 billion and total economic losses of some $10 billion, Munich Re said. Germany accounted for more than half the total.

Further, according to your Star link, the insured losses from the earthquake were only $300 million of that $30 billion figure. You need to distinguish between the figures for insurance losses and those for economic losses which include losses not covered by insurance. And neither of those correspond with figures for the loss of life.

in 2007, 3,500 Bangladeshi people lost their lives in the Hurricanes this year. Whereas, the July earthquake in Japan claimed only 7 lives. The overall picture here:
http://www.sci-tech-today.com/story.xhtml?story_id=00100020O458&page=2

So the Kyrill storm was the biggest event for insurance losses; the Japan earthquake was the biggest loss for economic damages including insured and non-insured losses; and the storms in Bangladesh caused the greatest loss of life.

Apparently earthquake damages are mostly not covered by insurance.

Presumably a storm that did the same amount of physical damage in a poor country would be less of an economic loss than in a rich country, just because prices would be lower to begin with. So a US house destroyed by Katrina would be worth more in dollars than a similar house destroyed in a poorer country.

No wonder some economists are less worried about global warming; since poor countries will get hit first, the economic damage will be less, even though the human damage will be equal or worse.

And I guess they think measures to curb GHG emissions would affect rich countries' economies which means major damage to those economies just because they are so big that any effect on them looks major to an economist. So these economists have a truly warped view when comparing how important rich countries are to poor countries.

Obviously I'm not an economist, so I could be missing something here.

This report has been featured on RealClimate, and although I am only 30 pages into it so far, I can recommend it very highly. The issues addressed have not been widely considered in discussions about AGW, and it is very thought provoking.

http://www.csis.org/component/option,com_csis_pubs/task, [space inserted]view/id,4154/type,1/

Here's the RealClimate discussion of the CSIS report "The Age of Consequences":

http://www.realclimate.org/index.php/archives/2007/12/
[space added]the-forecast-in-the-streets/