“…a small think tank with a knack of spotting new trends…” – Geoffrey Lean, Telegraph.co.uk.
Chapter 4. Rising Temperatures and Rising Seas: More Destructive Storms
Rising seas are not the only threat that comes with elevated global temperatures. Higher surface water temperatures in the tropical oceans mean more energy radiating into the atmosphere to drive tropical storm systems, leading to more frequent and more destructive storms. The combination of rising seas, more powerful storms, and stronger storm surges can be devastating. 61
In the fall of 1998, Hurricane Mitch—one of the most powerful storms ever to come out of the Atlantic, with winds approaching 200 miles per hour—hit the east coast of Central America. As atmospheric conditions stalled the normal northward progression of the storm, some 2 meters of rain were dumped on parts of Honduras and Nicaragua within a few days. The deluge collapsed homes, factories, and schools, leaving them in ruins. It destroyed roads and bridges. Seventy percent of the crops and much of the topsoil in Honduras were washed away—topsoil that had accumulated over long stretches of geological time. Huge mudslides destroyed villages, sometimes burying local populations. 62
The storm left 11,000 dead. Thousands more were never found. The basic infrastructure—the roads and bridges in Honduras and Nicaragua—was largely destroyed. President Flores of Honduras summed it up this way: “Overall, what was destroyed over several days took us 50 years to build.” The damage from this storm, exceeding the annual gross national product of the two countries, set their economic development back by 20 years. 63
In 2004, Japan experienced a record 10 typhoons (hurricanes) that collectively caused $10 billion worth of losses. During the same season, the state of Florida was hit by 4 of the 10 most costly hurricanes in U.S. history. These 4 hurricanes together generated insurance claims of $22 billion. 64
A year later, these storms were dwarfed when Hurricane Katrina came onshore in the U.S. Gulf region with a storm surge of more than 20 feet that totally destroyed many coastal towns. The storm also flooded New Orleans, leaving much of it uninhabitable. Altogether the storm generated hundreds of thousands of refugees from Alabama, Mississippi, and Louisiana. This powerful storm, fueled by higher temperatures of surface waters in the Gulf, left in its wake a bill estimated early on at $200 billion. Since it will take years for the region to fully recover, the cost could climb even higher. 65
Against this backdrop, insurance companies and reinsurance companies find it difficult to calculate a safe level of premiums, since the historical record traditionally used to calculate insurance fees is no longer a guide to the future. For example, the number of major flood disasters worldwide has grown during each of the last several decades, increasing from 6 major floods in the 1950s and 1960s to 8 in the 1970s, 18 in the 1980s, and 26 in the 1990s. 66
The insurers are convinced that with higher temperatures and more energy driving storm systems, future losses will be even greater. They are concerned about whether the industry can remain solvent under this onslaught of growing damages. So, too, is Moody’s Investors Service, which in 2002 downgraded the creditworthiness of several of the world’s leading reinsurance companies. Since then, one of these firms—Munich Re—reported that 2004 was a record year of claims for the insurance industry worldwide even after adjusting for inflation. 67
Thomas Loster, a Munich Re climate expert, said at the end of 2004: “As in 2002 and 2003, the overall balance of natural catastrophes is again clearly dominated by weather-related disasters, many of them exceptional and extreme.…We need to stop this dangerous experiment humankind is conducting on the Earth’s atmosphere.” The insurance industry is particularly concerned about new climate-related risks that may be emerging, such as Hurricane Catarina, which developed in 2004 in the South Atlantic, where water temperatures are not usually high enough to generate a hurricane. Whether Catarina, which came onshore in southern Brazil, is an anomalous event or the beginning of a disturbing new trend remains to be seen. 68
Munich Re has published a list of storms with insured losses of $1 billion or more. The first such natural disaster came in 1983, when Hurricane Alicia struck the United States, racking up $1.5 billion in insured losses. Of the 49 natural catastrophes with $1 billion or more of insured losses recorded through the end of 2004, 3 were earthquakes, including the devastating 2004 Asian tsunami; the other 46 were weather-related—storms, floods, hurricanes, or wildfires. During the 1980s, there were 3 such events; during the 1990s, there were 26; and during the first half of the current decade, 2000 through 2004, there were 17. 69
Prior to Hurricane Katrina, the two largest events in terms of total damage were Hurricane Andrew in 1992, which took down 60,000 homes and racked up $30 billion worth of damage, and the flooding of China’s Yangtze river basin in 1998, which also cost an estimated $30 billion, a sum comparable to the value of China’s rice harvest. Part of the growing damage toll is due to greater urban and industrial development in coastal areas and river floodplains. But part is due to more frequent, more destructive storms. 70
The regions most vulnerable to more powerful storms currently are the Atlantic and Gulf Coasts of the United States and the Caribbean countries. In Asia, it is East and Southeast Asia, including the Philippines, Taiwan, Japan, China, and Viet Nam, that are likely to bear the brunt of the powerful storms crossing the Pacific. Further west, in the Bay of Bengal, Bangladesh and the east coast of India are particularly vulnerable.
Western Europe, traditionally experiencing a heavily damaging winter storm perhaps once in a century, had its first winter storm to exceed $1 billion in 1987—one that wreaked $3.7 billion in destruction, $3.1 billion of which was covered by insurance. Since then, it has had eight winter storms with insured losses ranging from $1.3 billion to $5.9 billion. 71
Andrew Dlugolecki, a senior officer at the CGNU Insurance Group, the largest insurance company in the United Kingdom, notes that damage from atmospherically related events has increased by roughly 10 percent a year. “If such an increase were to continue indefinitely,” he notes, “by 2065 storm damage would exceed the gross world product. The world obviously would face bankruptcy long before then.” In the real world, few growth trends continue at a fixed rate for several decades, but Dlugolecki’s basic point is that climate change can be destructive, disruptive, and very costly. 72
61. Knutson and Tuleya, op. cit. note 13.
62. Janet N. Abramovitz, “Averting Unnatural Disasters,” in Lester R. Brown et al., State of the World 2001 (New York: W.W. Norton & Company, 2001) pp. 123–42.
63. Storm death toll from National Climatic Data Center, National Oceanic & Atmospheric Administration, U.S. Department of Commerce, “Mitch: The Deadliest Atlantic Hurricane Since 1780,” www.ncdc.noaa.gov/oa/reports/mitch/mitch.html, updated 1 July 2004; Flores quoted in Arturo Chavez et al., “After the Hurricane: Forest Sector Reconstruction in Honduras,” Forest Products Journal, November/December 2001, pp. 18–24; gross domestic product from International Monetary Fund (IMF), World Economic Outlook Database, at www.imf.org/external/pubs/ft/weo, updated April 2003.
64. Michael Smith, “Bad Weather, Climate Change Cost World Record $90 Billion,” Bloomberg, 15 December 2004; “Insurers See Hurricane Costs as High as $23 Billion,” Reuters, 4 October 2004.
65. Lisa Rein and Dan Balz, “240,000 Evacuees Strain Capacity,” Washington Post, 4 September 2005; National Climatic Data Center, “Climate of 2005: Summary of Hurricane Katrina,” fact sheet, www.ncdc.noaa.gov/oa/climate/research/2005/katrina.html, updated 1 September 2005; P.J. Webster et al., “Changes in Tropical Cyclone Number, Duration, and Intensity in a Warming Environment,” Science, vol. 309 (16 September 2005), pp. 1844–46; “Katrina May Cost as Much as Four Years of War: Government Certain to Pay More than $200 Billion Following Hurricane,” Associated Press, 10 September 2005.
66. “Awful Weather We’re Having,” op. cit. note 7; Munich Re, Topics Geo Annual Review: Natural Catastrophes 2004 (Munich, Germany: 2005), p. 15.
67. “Disaster and Its Shadow,” The Economist, 14 September 2002, p. 71; “Moody’s Downgrades Munich Re’s Ratings to ‘Aa1,’” Insurance Journal, 20 September 2002; Hilary Burke, “Insurers to Pay Record Disaster Damages in 2004,” Reuters, 16 December 2004; Richard Milne, “Hurricanes Cost Munich Re Reinsurance,” Financial Times, 6 November 2004.
68. Tim Hirsch, “Climate Change Hits Bottom Line,” BBC News, 15 December 2004.
69. Munich Re, “Natural Disasters: Billion-$ Insurance Losses,” in Louis Perroy, “Impacts of Climate Change on Financial Institutions’ Medium to Long Term Assets and Liabilities,” paper presented to the Staple Inn Actuarial Society, 14 June 2005.
70. Munich Re, Topics Annual Review: Natural Catastrophes 2001 (Munich, Germany: 2002), pp. 16–17; value of China’s wheat and rice harvests from USDA, op. cit. note 3, using prices from IMF, International Financial Statistics, electronic database, at ifs.apdi.net/imf.
71 Munich Re, op. cit. note 69.
72. Andrew Dlugolecki, “Climate Change and the Financial Services Industry,” speech delivered at the opening of the UNEP Financial Services Roundtable, Frankfurt, Germany, 16 November 2000; “Climate Change Could Bankrupt Us by 2065,” Environment News Service, 24 November 2000.
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