Disaster Losses Climb as Protection Gap Widens: Swiss Re Sigma Study

Global Economic losses from disaster events almost doubled in 2016 to $175 billion from $94 billion in 2015, according to the most recent Sigma Study from the Swiss Re Institute.

Insured losses also rose steeply to $54 billion in 2016 from $38 billion in 2015, the study found. This led to a “protection gap,” as the company calls it, of some $121 billion, the difference between economic and insured losses, a figure highly indicative of the opportunity for greater insurance penetration, according to Swiss Re. “The shortfall in insurance relative to total economic losses from all disaster events…indicates the large opportunity for insurance to help strengthen worldwide resilience against disaster events,” said the report. The gap was $56 billion in 2015.

Total economic and insured losses in 2015 and 2016:

The two headline loss figures are the highest since 2012 and end a four-year decline as the year saw a higher amount of significant disaster events including earthquakes, storms, floods and wildfires worldwide. The report noted that some events hit areas with high insurance penetration, leading to the 42% jump in insured losses.

Despite the precipitous rise in both economic and insured losses, human losses plummeted to approximately 11,000 lost or missing in 2016, down from more than 26,000 in 2015.

Of the 327 disaster events last year, 191 were natural disasters while 136 were man-made. Regionally, Asia experienced the most disaster events with 128 leading to approximately $60 billion in economic losses. Asia also had the single most costly disaster event of 2016 as the April earthquake on Kyushu Island, Japan caused an estimated $25 billion-$30 billion in economic losses.

Insured losses of $54 billion almost equaled the $53 million inflation-adjusted annual average of the past 10 years, said the report, despite being 42% higher than 2015’s $38 billion. Natural catastrophes accounted for $46 billion of insured losses, equal to the 10-year annual average, as man-made disasters led to $8 billion of insured losses, according to the report.

“In 2016, both economic and insured losses were close to their 10-year averages. Insured losses made up about 30% of total losses, with some areas faring much better because of higher insurance penetration,” Kurt Karl, Swiss Re’s chief economist said in a statement.

More than half of insured losses occurred in North America as a record number of severe convective storm events hit the region. These included an April hail storm in Texas, which caused $3.5 billion in economic loss and $3 billion in insured loss as some 86% of losses were covered. An August system brought severe storms and flooding to Louisiana, causing $10 billion in economic loss and $3.1 billion in insured loss.

The region saw several major disaster events.

In May and June, wildfires in Alberta and Saskatchewan, Canada caused $4 billion in economic losses and $2.8 billion in insured losses, Canada’s largest-ever insurance loss. The fire consumed 590,000 hectares of land and caused the evacuation of about 88,000 people. In October, hurricane Matthew, the first Category 5 storm in the North Atlantic since 2007, led to $12 billion in economic losses and $4 billion in insured losses while also, sadly, causing the greatest loss of life as 700 were lost, mainly in Haiti.

Flooding across Europe and China was also devastating at times. In May and June, severe rain and floods hit Belgium, France and parts of Germany, causing economic losses of $3.9 billion and insured losses of $2.9 billion. Flooding along China’s Yangtze River basin caused an estimated $22 billion in economic losses but low insurance penetration, in contrast to Europe, led to insured losses of just $400 million, according to the report.

Flood, Wind Dominant Natural Hazards in 2016

While most natural hazards occurring in the United States last year saw average or below average activity, the exceptions were flood and wind, according to the CoreLogic report Natural Hazard Risk Summary and Analysis, released today.

Severe flood events driven by substantial rainfall were the dominant natural hazards, with Louisiana and North Carolina floods being the major loss contributors. As in 2015, hurricanes and tropical storms in 2016 continued to cause inland flooding through increased and intense rainfall—even when not making landfall, according to the report.

The National Oceanic and Atmospheric Administration (NOAA) said there were 12 individual weather and climate disaster events in the U.S. with losses exceeding $1 billion in 2016.

According to the report:

  • Based on NOAA and CoreLogic analysis, the overall flood loss in 2016, driven by six, 1,000-year plus rain events, was approximately $17 billion, which is six times greater than the overall flood damage experienced in 2015.
  • The U.S. Geological Survey (USGS) recorded 943 earthquakes of magnitude 3.0 or greater in 2016, with more than 60 percent of these earthquakes located in Oklahoma.
  • The National Interagency Fire Center (NIFC) reported a total of 5,415,121 acres burned from 62,864 separate fires in 2016. While the total acres burned in 2016 fell below the 10-year average, significant losses occurred, with thousands of homes in California and Tennessee destroyed by several smaller fires that burned in populated areas.
  • Wind activity in 2016 was slightly above average, due in large part to strong winds brought by Hurricane Matthew.
  • Hail activity in 2016 was near the average, and Texas experienced the worst of this natural hazard.
  • Tornado activity in 2016 was near average compared with previous years.
  • Hurricane Matthew developed late in the year and grew to a Category 5 storm, resulting in substantial damage along the southeastern seaboard.
  • There were below-average levels of tropical cyclone activity in the western North Pacific Basin encompassing East and Southeast Asia in 2016.

However, 2016 became known as the year without a winter. Nine winter storms impacted the U.S. in 2016, the most notable being the late-January winter storm in New York.

“History has continually shown us that it is impossible to determine exactly when or where the next wildfire, flood or earthquake will strike, which is why preparedness, response and post-loss assessment are paramount,” CoreLogic said.

Wildfires a Reminder to Update Disaster Preparedness Plans

Raging across the country, threatening businesses and residences alike, wildfires are a reality, burning a reported 1.9 million acres in the U.S. so far this year. West of Santa Barbara, firefighters have battled an intense fire for almost a week. Wildfires are also burning in Arizona and New Mexico. In Canada, the Fort McMurray blaze burned for weeks and scorched some 2,400 square miles of land—more than 1.4 million acres. In five of the past 10 years, in fact, wildfires have ranked among the top 20 worldwide loss events.

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Companies that haven’t already done so may want to assess the impact such a disaster could have on their business as well as what actions can be taken to mitigate damage. While most businesses believe they are prepared for a fire, especially if their building is equipped with fire alarms, fire extinguishers, smoke detectors and an evacuation plan, these measures may not be enough when stress and confusion take over, according to Interstate.

Organizations could face utility interruption, impacting gas and phone syDocument recovery3stems; they may have flooding from sprinklers, which, mixed with soot, can cause other complications; there may be smoke damage, which can by carried throughout a building through air conditioning systems; and there can be chemical residue from fire suppression systems.

There also may be asbestos hazards from older building materials, ceiling and floor tiles and pipe insulation.

Planning ahead for data loss resulting from damaged computers and burned paper documents is also advised.

Interstate lists four questions companies need to ask in advance of such a disaster:
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Fort McMurray Wildfire Insured Losses Up to $6.9 Billion

Ft-McMurray map

NASA Fort McMurray wildfire map

Insured loss estimates from the wildfire in Fort McMurray, Alberta, Canada, are projected between $3.4 billion and $6.9 billion, catastrophe modeling firm AIR Worldwide reported. Officials are still in the early stages of assessing damage caused by the wildfire that began on May 1 and quickly spread from forests to neighborhoods, outpacing local firefighters’ capacity to contain it. According to AIR, the Fort McMurray wildfire is the costliest natural disaster in Canada’s history.

The fire had initially moved away from Fort McMurray, but shifted back toward the city this week, causing evacuations for the second time. About 500 to 600 people were evacuated from four small work camps, Alberta Premier Rachel Notley said in a news conference on Monday.

The fire is still uncontained and, as of May 14, had covered nearly 600,000 acres, mainly in wildlands and away from population centers. Winds are now calmer and temperatures have lowered, with considerable cloud cover and a possible shower expected—all of which are expected to help firefighting efforts.

The fire’s new threat reversed earlier efforts to return local oil sands projects to full operation, the New York Times reported. The highway through Fort McMurray was reopened several days ago to allow workers to return to the work sites, but was closed again on Monday.

Premier Notley said that five things need to be in place before residents may reenter Fort McMurray:

  • Wildfire is no longer an imminent threat to the community
  • Critical infrastructure is repaired to provide basic services
  • Essential services, such as fire, EMS, police and health care are restored to a basic level
  • Hazardous areas are secure—100 truckloads of fencing are being sent to Fort McMurray
  • Local government is re-established

Firefighting crews are still trying to put out fires in the northern part of the city. Fort McMurray’s airport, water treatment plant, municipal building, hospital and all functioning schools were safeguarded, according to AIR. The airport continues to be used only for wildfire aircraft operations, however, and is closed to commercial and private aircraft until further notice. Current information suggests that a total of more than 2,400 structures have been lost—roughly 10% of the total number.

AIR said its loss estimates capture residential, commercial and automobile losses, as well as business interruption losses, except those related to the oil industry. AIR derived its loss estimates based on high-resolution Industry Exposure Database (IED) for Canada and damage ratios estimated from satellite imagery and experience from claims adjustments for historical U.S. wildfires. IED exposure values included in loss estimates have been trended to Jan. 1, 2016.

The wildfires in Canada illustrate a continuing trend of increasingly severe wildfires that caused a record 10.1 million acres to be burned in the United States in 2015, surpassing the previous high of 9.8 million acres in 2006, Mark Crawford reported in last month’s issue of Risk Management. It was the fourth year in the past decade in which more than nine million acres burned. According to the U.S. Forest Service, the 2015 wildfire season was the costliest on record, with more than $2 billion spent fighting fires.