Warming trend continues into 2022 and expensive weather conditions pack a punch

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THE BHARAT EXPRESS NEWS INSURANCE NEWS
THE BHARAT EXPRESS NEWS INSURANCE NEWS
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According to data presented earlier this month at a joint NASA and NOAA webinar, 2022 was one of the warmest years since the late 1800s — continuing a trend that shows gradual global warming over the past few decades.

Scientists point to more frequent and disruptive weather events as the current impacts of climate change. If the trends continue, high claims costs could continue to plague insurers around the world for years to come.

“These frequent and increasingly costly extreme events impact humans and have an economic impact,” Sarah Kapnick, chief scientist for NOAA, explained during the Jan. 12 presentation. “The U.S. had the third most costly year on record for weather and climate-related disasters, with more than $165 billion in damage,” she said, referring to 2022.

Swiss Re estimated that natural and man-made disasters caused $268 billion in global economic losses in the first 11 months of last year. Kapnick explained that the US consistently has both the highest total number — more each year than any other country — and the greatest diversity of different types of weather and climate extremes leading to billion-dollar disasters.

This is generally due to two factors.

“First, a high example of many extremes where both exposure and vulnerability are high for causing harm,” Kapnick said. “And second, climate change is amplifying certain types of extremes that can lead to billion-dollar disasters.”

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NOAA and NASA collect and provide authoritative global climate data through instruments ranging from satellites to sensors on ocean buoys. NASA ranked 2022 as the fifth warmest year since 1880 — tied with 2015 — while a separate analysis by NOAA placed 2022 as sixth warmest.

“Anytime there’s a disaster, it’s an insurance event,” Seth Rachlin, a University of Chicago lecturer with more than 30 years of experience in insurance and technology, said in a separate interview. “And disasters are becoming more frequent and more serious. And as a result, the economic cost of those disasters is the impact on insurance,” he said, pointing to the difference between total and insured costs.

Figures show that the average surface temperature on Earth in 2022 was 1.55 degrees Fahrenheit above the 20th century average — or slightly warmer than in 2021. Russell Vose, chief of analysis and synthesis at NOAA’s National Centers for Environmental Information, said: said it’s clear that in each of the past four decades “it’s been warmer than the decade before it, and there’s been a really steady, steady rise in temperatures since at least the 1960s.”

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Rachlin said the most concrete and compelling evidence of climate change impacts on insurance can be found in the reinsurance market. This month was “just about the toughest renewal market anyone had ever seen,” he said. Howden reported that average global rate increases recorded on reinsurance renewals were 37%-plus for global real estate catastrophes — the largest year-over-year increase on January 1 since 1992.

The shorter-term response is to try to capture the change with tariffs, he explained. But Rachlin said this is probably not a long-term strategy as the world becomes increasingly dangerous from a climate perspective. He anticipates a push to relax regulatory standards to allow for adjustments that make products less exposed to disasters.

He also believes this will ultimately require insurers to work with the government to provide safety nets as a way to manage risk in the real estate market. He said this “will be no different than what happened to the post-9/11 terrorism insurance market with the terrorism backstop.”

Rachlin added: “I think we are moving towards climate backstops. Similar in some ways to what’s already happening in Florida, but I think more broadly, I see this as a public-private area for resolution.

He encouraged insurers to use the most accurate risk models to best manage underwriting guidelines, rates, capacity and accumulation. He also pointed to the need for innovation in resilience, asking the question, “How do insurers get better at advising, consulting and managing the risks they take in a very proactive way?”

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During the webinar, NASA Administrator Bill Nelson said the climate is “alerting us all” as wildfires intensify, hurricanes gain strength, sea levels rise and drought wreaks havoc. He ranked those nine of the past decade as the warmest years since 1880.

“That’s pretty alarming,” Nelson said. “That is a trend that is growing. And it is a trend that if we don’t take it seriously and take real action to mitigate it, there will be deadly consequences all over the world.”

Also during Thursday’s presentation, Nelson shared that NASA is developing a system of about five major observatories that will provide “state-of-the-art data” on climate change, severe weather, national hazards, wildfires and global food production.

Through government partnerships, that data will be shared with “people on the ground who use it to plant their crops, plan their harvests, map their resources, to provide the common defense (and) to protect against disasters.”

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