PwC’s Global Economy Watch indicates the apparent downward trend in cost per disaster may be driven by preventative measures, such as early warning systems for severe weather or laws that encourage maintaining wetlands in flood prone areas to absorb excess water.
PwC analysis of the latest data from the Centre for Research on the Epidemiology of Disasters (CRED) and found that the recorded number of natural disasters rose by an average rate of just over 3% per year between 1970 and 2016. However, given the variability of natural disasters there are significant peaks and troughs throughout the period. CRED data show there were 348 natural disasters globally in 2016[1], costing roughly US$150 billion in 2016 dollar terms.[2] This figure includes physical damage to property and assets, but does not quantify loss of life or revenue as a direct result of natural disasters.
Barret Kupelian, senior economist at PwC, commented: “Overall, economic output may not be significantly impacted by natural disasters in the long-run, but these events cause devastation for those affected. They are also becoming more prevalent and costly on a global scale. The increase in the real costs of natural disasters should serve as a reminder to businesses and governing bodies of the importance of increasing the risk-resilience of hard infrastructure and prioritising the management of the impacts of extreme natural events.”
Mohammad Khan, general insurance leader at PwC, said: “These findings are very important for the insurance industry. As insurers look for ways to grow their businesses they are increasingly expanding the geographical reach of the risks they insure and becoming more involved in diverse markets including Latin America, South-East and Far-East Asia.
“These are geographies where, historically, there has been less natural catastrophe data available to help insurers understand how to price risks. As we see significantly more economic and infrastructure risks globally being insured, the insurance industry is facing having to more frequently pay out costly insurance claims for natural catastrophes.
“Insurance companies will need to reflect this uptick in claims within their pricing of policies. They'll also need to manage shareholder and analyst expectations of their performance as the financial results of global insurers and reinsurers may be more volatile, depending on how material their exposure is to catastrophic events.”
• There were 348 recorded natural disasters in 2016, costing roughly US$150 billion
• While their frequency has increased, there are signs real cost per disaster has been declining
• Preventative measures could help further mitigate damage
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