CLIMATE CHANGE AND TRENDS OF NATURAL DISASTERS – WHAT IS TO BE DONE

Peter HoeppeGeo Risks Research/Corporate Climate Centre

2nd Conference of the OECD International Network on the Financial Management of Large Scale Catastrophes

Munich Re

Insurer for Insurances

Founded 1880

One of the leading reinsurance

companies

Covering risks of natural hazards

is part of the core business

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MR-Publication Flood / Inundation (August 1973)

© January 2007, Münchener Rückversicherungs-Gesellschaft, Geo Risks Research

Munich Re the First Alerter to Global Warming

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Origins and Types of Natural Catastrophes

Extraterrestrial: Meteorites

Geophysical (terrestrial): Earthquakes, volcano eruptions, tsunamis

Atmospheric (weather): Windstorms, floods, storms, hail, lightning, avalanches, mud slides

No human influence

No human influence

Pieces of evidence for human influence, risk of change!

Trends of Natural Disasters

Intensities

The last years have brought records in natural disasters

in respect to:

Frequencies

Damages and losses

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Heat stress

Cold stress

light

extreme

high

moderate

light

comfortable

moderate

high

extreme

Perceived Temperature on 8 August 2003 and excess mortality

Sources: Robine et al., 2007; German Weather Service, 2004

19.500

9.400

15.000

300

2.300

20.100

2.700

1.000800

Heat wave of 2003, with more than 70,000 fatalities the largest humanitarian natural catastrophe in Europe for centuries

25.-30.8 Hurricane Katrina, USA (1.322 fatalities)

Insured losses (US$ m): Economic losses (US$ m): 125.000

61.000 (NFIP included)

source: AP

August 2005 – Hurricane Katrina6th strongest hurricane, largest losses of a single event

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July 2005 – Mumbai Flood

On 26th July 2005 the meteorological station at Santacruz in North Mumbai (India) recorded 944 mm of rainfall within 24 hours, the highest ever in the history of precipitation recordings in India.

Insured losses (US$ m):

Economic losses (US$ m): 5.000

750

Fatalities: 1150

Flood series in the UK, June- July 2007Largest flood loss ever!

Source: www.metoffice.gov.uk/weather/seasonal/summer2007/index.html

Overall losses: > US$ 8 bn

Insured losses: US$ 6 bn

Overall losses: > US$ 8 bn

Insured losses: US$ 6 bn

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Tropical Cyclone Nargis, May 3, 2008

Source: http://www.reliefweb.int

Wind velocities up to 215 km/h (Cat 4)

Floods in the Irrawaddy delta, also Yangoon affected

Human catastrophe

Estimated number of fatalities about 100,000

© 2008 Münchener Rückversicherungs-Gesellschaft, GeoRisikoForschung, NatCatSERVICE

Victoria Wildfires, Australia (Black Saturday Fires)February 2009

Source: Reuters, Berlin

© 2009 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE. As at June 2009

Wildfires, February 2009

Overall losses: US$ 1,300m*Insured losses: US$ 650m*Fatalities: 173

Wildfires, February 2009

Overall losses: US$ 1,300m*Insured losses: US$ 650m*Fatalities: 173 *Losses in original values

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Munich Re NatCatSERVICE – One of the world‘s most comprehensive databases on natural catastrophes

From 1980 until today all loss events

For USA and selected countries in Europe all loss events since 1970

Retrospectively all Great Natural Catastrophes since 1950

In addition all major historical events starting from 79 AD – eruption of Mt.Vesuvio (3,000 historical data

sets)

Currently more than 26,000 events documented

Great natural catastrophes:

Hurricane Ike Cyclone Nargis

Earthquake China

Winter damage China

Extreme temperature (heat wave, forest fires)

Flood

Storm

Earthquake, tsunami,volcanic eruption

Natural catastrophes 2008

© 2009 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE. As at June 2009 12

Great natural catastrophes in Asia 1950 – 2008

Geophysical events(earthquake, tsunami, volcanic activity)

Meteorological events (storm)

Hydrological events(flood, mass movement)

Climatological events(extreme temperature, drought, wildfire)

© 2009 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – As at September 2009

Natural catastrophes in Asia

Climatological events (Extreme temperature, drought, forest fire)

Hydrological events(Flood, mass movement)

Meteorological events(Storm)

Weather catastrophes in Asia 1980 – 2008Number of events

Natural catastrophes 2008

© 2009 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – As at September 2009

50

100

150

200

250

300

350

400

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Global natural disasters 1980 – 2008Geophysical, meteorological, hydrological events

50

100

150

200

250

300

350

400

450

500

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Hydrological events(Flood, mass movement)

Meteorological events(Storm)

Geophysical events (Earthquake, tsunami,volcanic eruption)

----- Trend line

Num

ber

© 2009 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE15

Climate change probably has a significant impact on increases of nat cat losses, especially in North America and Asia/Australia.

Global NorthAmerica

Europe Asia/Australia

1980 –

2007

Nat cat loss trend (% p.a.) 11 11 8 15

Climate component (% p.a.) 4 5 1 6

Comments

These data are indicative only – a more precise determination of the regional loss drivers

related to climate change is needed (e.g. via LSE cooperation)

Nat cat loss trend: growth rates of original/nominal values and not adjusted for inflation

Climate component: actually “Climate plus X” because influencing factors include

anthropogenic climate change, natural climate variability, changes in vulnerability and

changes in population distribution

Annual growth rates of nat cat losses and climate component

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Black lines: decadal averages of observations

Blue band: 5-95% range 19 simulations from 5 climate models using only natural forcings

Red band: 5-95% range for 58 simulations from 14 climate models using natural and anthropogenic forcings

Quelle: IPCC FoAR, 2007

Global Warming is Real!Continental Temperature Changes

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very likely > 90% likely >66% more likely than not > 50%

Climate Change and Extreme Weather Events (IPCC, 2007)

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Trends of heavy precipitation events during summer monsoon in India

Source: Goswami, B. N. et al. (2006), Science 314

Increase of Sea Level for different CO2-Scenarios

*Basis: Range of ΔT = 1.5º-5.8ºC (IPCC TAR)

Quelle: Rahmstorf (2007), Science, 315, 368

A1FI

B1

140 cm

50 cm

Observed changes in sea surface temperatures

NATL = North Atlantic

WPAC = West Pacific

SPAC = South Pacific

EPAC = East Pacific

NIO = Northern Indic

SIO = Southern Indic

Source: Webster et al.

(2005),

Science, 309

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Residence Time of Greenhouse Gases in the Atmosphere

Greenhouse gas Value 1750

[ppm]

Value

2007 [ppm]

Human

share

[%]

Residence

time

[years]

Relative

green-

house

potential

Share

human

GHE

[%]

CO2 (Carbon dioxide) 280 384 30 120- 150 1 62

CH4 (Methane) 0.7 1.78 30 10-12 23 20

N2O (Nitrous oxide) 0.27 0.32 20 80-150 270-

310

6

CFCs (Chlorofluoro-

carbons)0 0.00001 -

0.0000005

100 1-260 500-

12000

10

SF6 (Sulphur-

hexafluoride)

0 0.0000042 100 3200 22200 <1

H2O Water vapor 1-3 1-3 few days 2Source: IPCC, diverse

Munich Re as a risk carrier

© 2009 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE. As at June 2009 24

DESERTEC Conceptfor Energy, Water and Climate Protection

© 2009 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE. As at June 2009 25

DII Founding Meeting at Munich Re13 July 2009

Desertec Industrial Initiative (DII)

12 companies signed a Memorandum of Understanding to establisha Desertec Industrial Initiative (DII).

The objective of this initiative is to analyse and develop the technical, economic, political, social and ecological framework for carbon-free power generation in the deserts of North Africa.

Insurance Linked Adaptation to Increasing Weather Extremes in Developing Countries

Munich Climate Insurance Initiative (MCII)

MCII was founded in 2005 on initiative by Munich Re

Today MCII is a registered non profit organisation with members from: Insurance, NGOs, Relief Organisations, Research Institutes, World Bank and independent experts.

Objectives: Develop insurance-related solutions to help manage the impacts of climate change in developing countries.

Recent activities:MCII-Submission to UNFCCC with concrete suggestions of insurance tools to be implemented in a Post-Kyoto-Protocol. Suggestions are being discussed by delegates of the climate negotiations on their way to Copenhagen.

MCII

The MCII Proposal

Prevention Pillar

High LayerRISK

Middle LayerRISK

Low LayerRISK

TIER 1Climate Insurance

Pool

TIER 2 Support for micro and

macro insurance systems

InsurancePillar

RIS

K M

AN

AG

EM

EN

T

MO

DU

LE

The two-tiered insurance pillar

• Meets the principles set out by the UNFCCC

• Provides assistance to the most vulnerable, and

• Includes private market participation.

Premiums paid by AF

($5 bn)

Support financed by AF ($2 bn)

Support financed by AF ($3 bn)

Rough estimated

annual costs: $ 10 bn

RIS

K M

AN

AG

EM

EN

T

MO

DU

LE

Prevention Pillar

InsurancePillar

Low LayerRISK

mainlymainly

TIER 1Climate Insurance

Pool

TIER 2 Support for micro and

macro insurance systems

High LayerRISK

Middle LayerRISK

Evaluating the economics of climate risks & opportunities in the insurance sector

Main areas of research activitiesquantifying the costs of a climate-related increase in natural catastrophesdealing with the uncertainties of climate modelsevaluating the potential and consequences of emissions trading systems and the appropriate design of such schemesestimating the economic impacts of climate change on the BRIC states (Brazil, Russia, India, China)

Institute: Centre for Climate Change Economics and Policy at LSEChair: Lord Nicholas SternManagement: Prof. Rees (LSE), Prof. Gouldson (Leeds)Project duration: 2008-2012Sponsoring: £3m (~ €4m)

Collaboration between Munich Re and the London School of Economics

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Conclusions

Natural catastrophes, especially weather related events, are increasing in number and magnitude especially in Asia.

There is more and more scientific evidence for causal links between climate change and increasing frequencies and intensities of natural catastrophes.

Global warming is real.

We have to mitigate global warming and adapt to the changing risks in respect to the regionally specific risk patterns.

In Copenhagen ambitious CO2-reduction targets should be fixed to avoid dangerous, unmanageable climate change.

The insurance industry supports climate change mitigation and adaptation measures by sharing its knowledge with the public and providing custom made covers for innovative technologies.

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The Copenhagen outcome should provide adaptation funds for developing and emerging countries, including new insurance solutions.

THANK YOU!