Access to insurance as a way of mitigating the effect of global warming

Access to insurance as a way of mitigating the effect

of global warming

One important step towards mitigating the effects of global warming is to provide proper insurance solutions to at least minimize the adverse financial consequences of an increasing number of natural catastrophes for countries and populations at risk. As shown in Figure 3, the worldwide distribution of insurance availability is very inhomogeneous. While the industrialized countries in North America, Europe and Australia enjoy a high level of insurance penetration, in Africa, Asia, and Latin America there are many countries with hardly any catastrophe insurance available.

The role played by commercial catastrophe insurance today in financing losses from natural disasters is explored further in Figure 4. The figure shows absolute annual insured losses on a 5-year-average basis for high income and lower income countries, as well as the trend line. A simple comparison of insured losses with overall economic losses from natural disasters (as depicted in Figure 7) shows a great disparity in the level of insurance coverage between the rich and the poor countries. While, in developed countries, the role of commercial disaster insurance in financing natural disasters has increased over the last 20 years from about 20% of economic loss in the early 1980s to about 40% today, the share of economic loss covered by insurance in developing countries has remained almost stagnant over the same period, accounting for about 3% of total economic loss. Although, to a large extent, such a disparity in insurance coverage can be explained by major differences in countries’ levels of income and wealth, we must also point out the level of risk awareness, overall insurance culture, and finally, the extent to which private citizens are prepared to rely on governments for financial support in the aftermath of natural disasters.

An interesting question for the choice of regional scope and design of a climate insurance system is, whether there are differences between wealthy regions with an already high insurance density and other regions with little insurance availability in terms of their exposure and vulnerability to weather-related disasters. To answer this question some new analyses have been carried out at Munich Re. Figure 5 shows a map of the global distribution of great natural disasters between 1980 and 2005.

From Figure 5 one can hardly discern any difference in the pattern of natural disasters between ‘wealthy’ and ‘poorer’ countries. The USA, EU countries and Japan seem to be affected to a similar extent as the Caribbean States, India, the Philippines and China. In Figure 6, we explore the same question of potential differences in disaster patterns that may exist between four different income-groups of countries (in terms of GDP) intertemporally by looking at the annual number of weather-related catastrophes (all damaging events, not only great disasters).

By far the largest number of such events have occurred in the countries in the highest GDP class (>US$9,385), while between the other three classes there is hardly any difference. In all classes, however, there is a common upward trend in the number of annual events. Since the 1980s, the number of weather-related disasters increased from 180 events in the highest GDP class and about 50 events in the lower GDP classes to about 300 and 100 events, respectively, in 2004.