Economic and insured losses

Economic and insured losses

The trend of economic and insured losses is primarily attributable to the steady growth of the world population, the increasing

 concentration of people and economic value in urban areas, and the global migration of populations and industries into areas, such as coastal regions, that are particularly exposed to natural hazards. Yet, from the first results of an ongoing study of climate change by Munich Re, there seems to be a significant influence of climate change that can be seen not only through the increasing number of events, but also their atmospheric intensification.
During the last years there have been more and more indicators that climatic change is already influencing the frequency and intensity of natural catastrophes: e.g. the century flood in Saxony in 2002, the 450-year event of the extremely hot summer in Europe in 2003, and the all-time hurricane and typhoon record years of 2004 and 2005. In 2004, the first ever hurricane (Catarina) formed in the South Atlantic and caused significant damage in Brazil; in 2005 hurricane Vince formed close to the island of Madeira, the furthest northeast a tropical cyclone had ever developed in the Atlantic. Until recently, such phenomena had been thought to be impossible because of the relatively unfavourable conditions for the genesis of tropical storms there. The year 2005 has already set other records for hurricanes in the North Atlantic: never since the beginning of the records (1850) have so many devastating named tropical storms (seven by the end of July) developed that early in the season, and never before has a total number of 27 (including Zeta) been reached in one hurricane season (the previous record was 21). According to the World Meteorological Organization (WMO), the years 2001–2004 were among the five warmest recorded worldwide since 1856, with 2005 being the second warmest ever; which is yet more evidence of global warming.

Although the IPCC, in their 2001 report, still presented no clear proof of the correlation between global warming and the increased frequency and intensity of extreme atmospheric events, recent studies and simulations have provided a good deal of evidence that the probabilities of various meteorological parameters reaching extreme values are changing. A recent model simulation for the North Atlantic suggests that climate change will intensify the maximum wind speed by 0.5 on the Saffir–Simpson scale and precipitation by 18% in hurricanes until 2050 (Knutson and Tuleya, 2004). British scientists have estimated that it is very likely (confidence level >90%) that human influence has already at least doubled the risk of a heatwave exceeding the threshold magnitude of the European heatwave of 2003 (Stott et al., 2004). Recent publications by Emanuel (2005) and Webster et al. (2005) show for the first time that major tropical storms, both in the Atlantic and the Pacific region, have already increased since the 1970s in duration and intensity by about 50%. They predict that this trend induced by global warming will continue in the future. A study by Barnett et al. (2005) has demonstrated that the sea-surface temperatures in the areas relevant for tropical storms have already increased due to global warming by 0.5°C.
If the scientific global climate models tell us the truth, the present problems will be magnified in the near future. Changes in many atmospheric processes might significantly increase the frequency and severity of heatwaves, droughts, bush fires, tropical and extratropical cyclones, tornadoes, hailstorms, floods and storm surges in many parts of the world. These events will inevitably have a profound impact on property as well as also affecting the health and livelihood of many people. We have to expect:
•        increases in weather variability
•        new extreme values for temperature, precipitation or wind speed in certain regions• new exposures (like hurricanes in the South Atlantic)
•        more frequent and devastating disasters.
The decisive question today is not when we will have the ultimate proof for anthropogenic climate change – a small risk of error will certainly still remain for some time – but which strategies we should follow to both mitigate and adapt to the change.

Comments

Post a Comment

Popular posts from this blog

Fundamental and Particular Risks

Image
Fundamental and Particular Risks The distinction between fundamental and partiCUlar risks is based on the concept of hazard defined by Kulp. Particular risks involve losses that arise out of individual events and are felt by individuals rather than a group. Fundamental risks involve losses that affect a large segment of the population. The later are caused for the most part by economic, social, climatic, health and/or political phenomena. Examples are wars, earthquakes, health diseases, economic recessions leading to unemployment.   Fundamental risks may be static or dynamic.Systematic and Unsystematic Risks This is a basic principle in financial management: risk can be eliminated through diversification. Diversification reduces risks if all the outcomes of risky events do not produce the same result or do not arise all at the same time. The convention in finance is to interpret risk in the spirit of Willet and Knight. A risky outcome is one that can assure a number of values. It i...
Read more

The Risk Management Process

Image
The Risk Management Process Hamrd (or Risk) Identification One of the most critical functions of risk man agement  is probably the identification process. A failure to recognize the existence of one or more potential events can result in financial disaster. The importance of being able to anticipate the existence of the problem before it materializes is recognized by everyone but unfortunately there is no scientific method or systemic approach to the identification process. In the extreme case, the very existence of the risk may be unknown. In the past, exposure identification has largely been exercised in terms of those exposures that are insurable and in terms of the company past experience. The most difficult part of the identification process is that it requires that the manager be clairvoyant and continually asks "what if" questions. Williams and Heins (1989) define risk identification as "the process by which a business systematically and continuously identifies pr...
Read more

The Objective of Risk Management

Image
The Objective of Risk Management According to asset pricing models in Finance, the risks specific to a firm are diversifiable and therefore irrelevant except as it affects  the firm's systematic risk. However, corporations are majors purchasers of insurance and financial futures and forward contracts, sign long-term purchase and sales contracts, and engage in a variety of activities to avoid or reduce risks. One explanation of this behavior is that asset pricing models are concerned only with the effect of risk on market discount rates and for the most part ignore its effect on expected cashflows. Property losses are often not the only losses that occur when property is damaged or destroyed. Until that property is replaced or restored to its initial condition, the business may suffer a reduction in its net income either because revenues are decreased or because expenses are increased or both. Any action taken by a firm that decreases risks, improves its prospects for survival and...
Read more