2010 Disasters Cost the World $218 Billion and the Insurance Industry $43 Billion

Swiss Re’s latest sigma study (full report; abstract) reveals that the final economic losses resulting from disasters (both natural and man-made) across the globe in 2010 was $218 billion — a number that dwarfs the $68 billion in damages caused by catastrophes in 2009.

With unprecedented flooding, Asia was the region worst hit, with $75 billion of the total occurring there. In relative terms, however, the fallout may be worse for the Latin America/Caribbean region. The $53 billion caused by the earthquakes in Haiti and Chile represents a staggering 1.1% of the region’s GDP. (By comparison, Asia’s $75 billion in losses was only 0.28% of its GDP.)

Here is Swiss Re’s regional breakdown of the number of disasters, death toll and financial fallout.

Insured losses in 2010 totaled $43 billion as a whopping 10 different events caused insured losses of at least $1 billion. This was a huge jump from the $27 billion in insured losses for the global industry in 2009.

In all, 2010 had 304 catastrophic events.

The globe has seen a troubling trend of more natural catastrophes nearly every year in recent decades, and 2010 was no different with 167 natural disasters. On the flip side, the declining trend of man-made disasters the world has experienced since 2005 also held true, with just 137 man-made events. This is perhaps the only positive nugget of information in the entire report. (Although even this silver lining is bittersweet as you will see below when we look at the resulting death toll.)

Worst of all, of course, were the 304,000 people killed by disasters last year, making 2010 the third deadliest year since 1970 (the year Swiss Re first began collecting such data).

In 2010, severe catastrophes claimed significantly more lives than the previous year: around 304,000 were killed, compared to 15,000 in 2009. The deadliest event in 2010 was the Haiti earthquake in January, which claimed more than 222,000 lives. Nearly 56,000 people died during the summer heatwave in Russia. The summer floods in China and Pakistan also resulted in over 6,200 deaths.

Man-made disasters accounted for a small percentage of deaths last year, in relative terms, but the 6,446 killed was still a significantly higher number than the 5,970 who died in this manner in 2009. This fact puts a large blemish on the positive news that there were fewer man-made events. There may have been fewer incidents, but the ones that did occur were deadlier and that lower-occurrence/worse-outcome ratio should be going the other way in 2011 as safety, security and other risk management means strive to lessen the impact of catastrophes.

The man-made disasters that claimed the most victims in 2010 were a lead poisoning outbreak at an illegal gold mine in Nigeria in March (400 victims, mainly children), a stampede on a bridge at a festival in Cambodia in November (375 victims) and the collapse of a gold mine in Sierra Leone in March that killed approximately 200 people. Meanwhile, aviation and maritime disasters accounted for more than 800 and 1,100 victims respectively.

Moving beyond the past, the globe has already been badly battered so far in 2011.

The Japanese earthquake and tsunami killed an estimated 18,500 people and caused upwards of $30 billion in insured losses alone, according to some experts. The Christchurch quake in New Zealand also ravaged the insurance industry, Australia floods cost billions and winter storms in the United States did plenty of damage of their own. Who knows what the final fallout will be from social revolutions in the Middle East, but it’s safe to say that there will be some claims.

All this and it’s not even hurricane season yet.

Hopefully, there is no way that more people will be killed by disasters in 2011 than we saw in 2010. But when it comes to economic losses, specifically insured losses, it is already shaping up to be a historic, market-altering year.

The Rising Cost of Disasters

A new report from Allianz analyzes the fact that the insurance claims from natural disaster are becoming more expensive. The key reason is not so much that there are more disasters, just more buildings, more development and more insurance. And as parts of the developing world, specifically China and India, continue to become more affluent, we can likely expect this to continue.

One way this is illustrated is by looking at the most powerful and more deadly earthquakes in each of the past ten years. In some years (2003, 2008 and 2011 so far), the strongest quake is also the most deadly. But in other years, notably last year with the 8.8 magnitude earthquake in Chile killing 507 people and the 7.0 earthquake in Haiti killing more than 200,000, that has not been the case. The two main reasons for this is that the stronger quake either hits a very remote location where people don’t live or it hits a location with modern building codes and shake-resistant buildings.

Markus Treml, seismology expert at Allianz SE Reinsurance, explains.

The Energy factor shows the ratio between the seismic energy released by the two earthquakes. For example, the quake in Chile released 500 times more energy than the quake in Haiti. This table shows that those regions where tectonic plates clash are at highest risk. Six tremendous earthquakes happened in Indonesia in the last decade. All other earthquakes in this table – except Haiti – are also in high-risk zones. The amount of energy released does not necessarily mean more damage or casualties. Instead, weak buildings or secondary effects of earthquakes such as tsunamis or fires are the most common reason for high fatality rates. This was the case in Haiti in 2010, in Northern Sumatra in 2004 and will probably be the case for Japan.

As he mentions, the “energy factor” in the chart below represents how much more powerful the strongest earthquake was each year than the most deadly.

December Issue of Risk Management Now Online

Faithful readers: the December issue of Risk Management magazine is now online here. Following tradition, we devote the December issue to recapping the Year in Risk. From the Haiti earthquake to flooding in Pakistan to the Greek debt crisis to numerous legal settlements, we cover more than 50 risk management-related issues that occurred in 2010 while offering an in-depth look at the Gulf oil spill, the Toyota recall and the Chilean mine disaster.

Our columns explore topics such as the lack of progress in fighting malaria, legal lessons from the Great Fire of 1906 and the increase in accidents since bans on texting while driving. Also included are monthly staples such as our articles highlighting recent industry reports (Findings) and our book reviews (Shelf Life).

If you enjoy what you seen online, you can subscribe to the print edition to enjoy even more content.

Please let us know what you think in the comments below. And stay tuned to the blog for even more coverage in the future. Lastly, you can follow the magazine on Twitter“like” us on Facebook and join our LinkedIn group.

Global Earthquake Activity “Within the Normal Range”

This morning, many Americas awoke to the tragic news that an magnitude 6.9 (or 7.1, according state-run China Earthquake Networks Administration) earthquake had struck the western Chinese province of Qinghai. The initial reported death toll made it seem as though the population had perhaps dodged a bullet, but there have now been close to 500 casualties identified, with another 10,000 injured. And if we use history as a guide, these numbers may very well increase as well. Heart-breaking.

Still, when you consider that the 2008 Sichaun quake struck along the same Longmenshan fault system in a more populous region and killed some 90,000 people, things could have been worse. And in a year where another powerful, seismic event shakes the globe seemingly every week, that is at least one thing to be thankful for as the region tries to launch successful rescue and recovery efforts.

But has the earth really been producing more major quakes? It sure seems like it, and Newsweek gives a rundown of the recent evidence:

Yesterday, a 6.9-magnitude quake struck Qinghai, China, resulting in an estimated 400 dead and 10,000 injured. One week before that, a 7.7 tremor hit Northern Sumatra, Indonesia. Two days before that, a 7.2 shook Baja, Mexico. At the end of February, Chile shuddered under an 8.8 earthquake, little over a month after a 7.0 crumbled Haiti and killed nearly 230,000. With such a list, 2010 appears to be the year of the apocalypse or, at the very least, unnaturally active for these natural disasters.

But it is not.

According to the United States Geological Survey, seismic activity in 2010 has been well “within the normal range.”

Scientists say 2010 is not showing signs of unusually high earthquake activity. Since 1900, an average of 16 magnitude 7 or greater earthquakes — the size that seismologists define as major — have occurred worldwide each year. Some years have had as few as 6, as in 1986 and 1989, while 1943 had 32, with considerable variability from year to year.

With six major earthquakes striking in the first four months of this year, 2010 is well within the normal range. Furthermore, from April 15, 2009, to April 14, 2010, there have been 18 major earthquakes, a number also well within the expected variation.

“While the number of earthquakes is within the normal range, this does not diminish the fact that there has been extreme devastation and loss of life in heavily populated areas,” said USGS Associate Coordinator for Earthquake Hazards Dr. Michael Blanpied.

The last line is the key.

There aren’t more earthquakes. There are more people.

And that is why the need for better preparedness, building codes and emergency response is greater than ever. The worst-case events of the recent past may not actually be worse than the true true worst-case disasters we will see in the future. (For reference, here are the 11 deadliest earthquakes in history.) With the global population projected to reach nine billion by mid-century, there will be way more people who are — quite literally — atop shaky ground.

We have seen a similar phenomenon both in the United States and globally in terms of hurricane/windstorm risk. Whether or not hurricanes are actually increasing is debatable (and not something I want to get into here), but what is undisputed is that more people today live near the coast than ever before. Internal migrations and population booms in recent decades have left more people directly in the path of the storm.

And now, we are seeing how the same thing can — and will continue to — tragically play out near fault lines.

UPDATE: Here’s a feature we ran way back in 2005 (pre-Katrina even) detailing the increasing danger disasters pose to coastal communities. Obviously, the stats are a little dated, but the general trend has not changed.

[All this recent storm] activity underscores just how precarious it is to live and work on the world’s coasts. Despite this, the United Nations has estimated that 37% of the world’s population lives within 100 kilometers (about 62 miles) of the coast. In theUnited States, coastal areas make up one-fifth of the landmass but are home to more than half of the population. And according to a paper by Charles Colgan, chief economist of the National Ocean Economics Project and professor of public policy and management at the University of Southern Maine, 75% of the U.S. domestic economy came from coastal areas in 2000. With these numbers steadily increasing, it is vitally important to understand the natural catastrophe risks related to coastal development, especially in light of what was a particularly active year for such events.

Our other editor Morgan O’Rourke wrote the piece and breaks down both tsunami risk and the memorable 2004 hurricane season if you want to read more on the topic.

UPDATE II: EQECAT, a leading catastrophe risk modeling company, released an update on the Qinghai quake, announcing that — as expected — the insured losses will be “minimal.”

Approximately 16,000 people were exposed to strong ground shaking, and hundreds of deaths have been reported, primarily due to the particular earthquake-vulnerability of the of the conventional mud-brick construction.  Though this earthquake has caused immense consequences to the people affected, its significance among the insurance community will be minimal.  The Yushu prefecture in which the earthquake was centered contributes a fraction of a percent to China’s GDP, with primary industries of herding and farming, as well as limited tourism related to Buddhist monasteries throughout the region.

Seismic activity in the Tibetan plateau is related to extrusion within the Eurasian plate resulting from convergence of the Indian plate along the Himalayan front.  Extrusion-related earthquakes with moderate to large magnitudes, of which the magnitude 7.9 2008 Wenchuan earthquake was one example, are known to occur throughout central China from the Himalaya northward.