Report: NatCat losses in the first half of 2024

Mark Maroon:

Hey everyone. Welcome to Climate Check. This is Mark Maroon, Vice President and Head of Portfolio Management and Reinsurance at American Modern, a Munich Re company. Today, we’re joined by a recurring guest, Ernst Rauch, Chief Climate Scientist at Munich Re. Ernst, thanks again for joining us today.

Ernst Rauch:

Yeah, thank you so much, Mark, for having me again on this podcast. It’s indeed a pleasure to discuss numbers and events from the natural disasters of the first half of 2024 and share it with our clients and stakeholders.

Mark Maroon:

Absolutely. We love having you here. So, before we get into that, can you remind everybody a little bit about your role here at Munich Re?

Ernst Rauch:

Yeah, I’m Munich Re’s Chief Climate Scientist, and it’s a role that encompasses the responsibility for all climate-related activities, especially when it comes to Munich Re’s climate strategy, which the team is supporting, also the board of management and other teams here within Munich Re. But it’s also related to the business development support of our business units and a lot of services we provide to our clients. And last, but not least, we also engage in communication activities and share data and information with our stakeholders.

Mark Maroon:

One of the biggest things that I know you put out on a regular basis are the loss reports insured and uninsured from natural disasters over the prior year. So, who’s your main audience for these reports, and what do they help them understand?

Ernst Rauch:

Well, our audience starts with our clients, of course. We share this information and discuss it with our clients because it has an impact on our business relationship, on our treaties and on our facultative covers when it comes to losses from natural disasters and what they mean going forward on the pricing side and accumulation control side, for instance.

But the audience is indeed much, much broader. It is also policymakers, the broader public, and everybody who is interested in the development of natural disasters from a global perspective, as Munich Re is a global reinsurer. And also interested in putting certain regional events or local events into a broader context, be it from a global perspective, a worldwide perspective, or from a longer temporal context.

This is what we do, as we have collected and analyzed disaster events, economic losses, insured losses, and fatalities from these events for decades. We actually have data going back to the 1980s. So that also allows us to analyze potential trends and the drivers of the trends if we observe them.

Mark Maroon:

So, no doubt, there’s a lot of interesting information in here, when I go back and look through some of the reports from years prior. If we just dig into 2023 first, it looks like there were around $260 billion worth of global losses, roughly a hundred billion of that insured inflation adjusted and everything. And unfortunately, a little bit over 77,000 lives were lost in natural disasters last year. Before we get into how that compares to what you’re seeing so far this year, can you maybe put 2023 into perspective for us?

Ernst Rauch:

Well, in 2023, we have observed not record losses, but high overall economic losses that were relatively modest compared to the overall losses, insured losses. In 2023, the most relevant and disastrous natural event was the earthquake in Turkey and Syria, which claimed the lives of more than 50,000 people. It was a humanitarian tragedy, but the overall losses were also at a record high in 2023 of $50 billion, out of which about $5 billion to $6 billion were insured. So, with other words, if you look at these two figures, overall economic losses, insured losses, we see that in a country like Turkey and when it comes to earthquakes, only around about 10% plus/minus are insured. From an insurance perspective, we expressed this as an insurance gap of somewhere in the order of 90%. So, a lot of people are uninsured from a recovery perspective and financing perspective. Of those who didn't have insurance, they now rely or did rely on governmental help and help coming from other sources like NGOs and donor organizations.

Mark Maroon:

So, now that we’re halfway through 2024, how does the first half of this year compare against the first half of last year in terms of overall NatCat losses?

Ernst Rauch:

Yeah, our experts at Munich Re recorded, for the first half of 2024, overall economic losses from natural disasters worldwide at around $120 billion. That compares with last year, when the numbers were higher at $140 billion. Looking at the insured losses in the first half of 2024, we saw $62 billion of insured losses, and in [the first half of] 2023, only $60 billion. So, 2024 was slightly higher.

And one of the main reasons why overall losses were lower in 2024 while insured losses were higher was the earthquake in Turkey and Syria, where the uninsured part of the insurance gap was very high, whilst the overall economic losses and the death toll were extremely high as well.

Mark Maroon:

Have there been significant flooding losses in the first half of 2024?

Ernst Rauch:

Indeed, in the first half of 2024, we have seen massive flooding events around the world, but what is probably even more interesting is that we had flooding events in two regions where most people would call them unexpected flooding events. One was in the United Arab Emirates in Dubai, with massive flooding and losses. Actually, not only from a meteorological or hydrological perspective but also from an insurance perspective, overall losses were $8.3 billion, out of which $2.8 billion were insured. There is no other comparison event in this region in the past decades, actually going back 70 to 80 years. That’s a unique event. Unexpected, I would say.

And similarly, we saw massive flooding in Brazil in May 2024, with overall losses in the order of $7 billion and insured losses of $2 billion. Historically, in the last 70 or 80 years, we haven’t seen a comparable event. I think those are the most relevant highlights for us from an insurance perspective, but even more so for the people in broader society, realizing that we are living in times of more and more such unexpected events. And sometimes, from an insurance perspective, we see this jump change on the loss side. With many of those events, it is very likely that climate change is one of the factors contributing to this unexpected situation.

Mark Maroon:

So, maybe to pull on that thread a little bit more anecdotally, it really does feel like we’ve had a lot more flooding events globally over the last three to five years. If you had to look into your crystal ball, do you think that we’re going to be seeing an accelerated pace of these unexpected flooding events going forward? Or do you think this is a strange temporal thing that we might just work our way out of?

Ernst Rauch:

Yeah, first, there has been a trend toward a higher frequency of weather-related events, and floodings are part of this trend, and this trend is also toward higher losses, economic losses, and insured losses. But what should concern us even more are unexpected events or events in places - serious events - in places that didn’t have such an experience in past years. As a result, people are not prepared for such events.

They don’t take preventive measures, and they don’t adapt to such potential events in this region. And that’s very different from what we had earlier with earthquakes in Japan, where people or society accept building codes, governments introduce building codes, and enforce building codes. That’s not necessarily the case in situations like the flooding in Dubai, the United Arab Emirates, or Brazil that happened in the first half of 2024.

Mark Maroon:

So, you’ve mentioned a couple times that more of these events are happening in places where it’s a little bit unexpected, which then ties back to our earlier commentary on protection gaps and potentially increasing protection gaps in areas that we wouldn’t expect to see these types of events. So, how do you think we can move forward to try to close those gaps? Is it really more of a communication effort? Is it more about working individually with individual industries and governments? What do you think is the best way forward?

Ernst Rauch:

I think the best starting point is with information and communication. People, but also professionals, companies, industries, policymakers, and scientists, have to be aware of the situation and understand the impacts of ever-increasing natural disasters, both from a financial perspective and a humanitarian perspective. And people who don’t know about such trends or such developments, of course, did not necessarily take action, adapt, and prevent these events from happening going forward.

So, information is key, and this is actually what we do here at Munich Re. We share our data on natural disasters, which we have been collecting since the 1970s, early 1980s, and we share this data and our analysis. We are convinced that one way of bringing such events to the attention of societies is to allow for better decision making on prevention measures. So, that’s the starting point: information.

Mark Maroon:

That makes a lot of sense. So, moving on from flooding to, I guess I’d call it a similar peril, thunderstorms brought some extreme insured losses to the US and Europe last year. Are we seeing a similar trajectory on that this year?

Ernst Rauch:

Unfortunately, yes. Thunderstorms, severe convective storms, tornadoes, hail, and local or regional flooding events from extreme rainfall amounts. They have also been amongst the top insured losses in the first half of 2024. Actually, if I look at the statistics, which we have put together and shared with our stakeholders in this media release, all of the five top insured losses were related to thunderstorms, severe convective storms, or other, what’s very often called non-peak perils, like flooding events. Actually, out of the five top events, or insured losses, four were in the US.

Mark Maroon:

Unfortunately, I don’t think it’s probably too surprising given the amount of atmospheric instability that we’ve seen here, especially in the months of May and June. I’m not at all surprised to hear that four of the top five are coming from the States, unfortunately. So, I guess moving forward, looking into the rest of 2024, there have been some projections of a potentially active hurricane season with the North Atlantic base, and certainly, wildfire is also a concern. How do you see the rest of the year potentially playing out?

Ernst Rauch:

The odds are not very much in favor of hopes for a very relaxed natural catastrophe season in the second half of 2024. And the reason is that if you look at the current sea surface temperatures all around the world, but namely in the North Atlantic (the ocean that affects hurricanes in North America, in the Gulf of Mexico), sea surface temperatures are above average. Atmospheric temperatures have been at record levels in the first half of 2023.

High temperatures always mean high energy content in the atmosphere. So, that’s one of the main drivers of severe weather events in this convective storm space, as well as hurricanes and tropical cyclones. The second element is that if you look at the natural climate variability, the El Niño and La Niña situations we saw as of July 2024 (a neutral phase), we’ve been coming out of an El Niño phase the last couple of months and back in 2023.

But the US Weather Service NOAA anticipates, just like other weather services, that in the second half of 2024, we will likely see the development of a La Niña situation. And the La Niña situation typically favors the development of tropical cyclones and hurricanes that make landfall in North America. So again, it doesn’t look too good. Having said this, it’s not really possible to make any sound and precise forecast because even if the number of tropical cyclones and hurricanes were above the long-term average, that’s actually what we have observed in past years in the North Atlantic.

It is always crucial and always key where such a storm makes landfall; if it is in an area with a high concentration of people and values, then of course, the overall and insured losses are typically higher relative to a landfall in an area with a low density population and low industrial situations.

Mark Maroon:

So, I guess what I’m hearing is that while maybe the deck is stacked against us, maybe it’s not all doom and gloom.

Ernst Rauch:

I think what is important with such forecasts, predictions, or situations is to prepare for severe weather events and catastrophes. And that can mean many things. Evacuate as early as possible if there are warnings; protect your property; make it flood-proof as much as possible; and storm-proof. A lot of action can be taken to minimize physical losses, but even more so to protect lives.

Mark Maroon:

The best time to prepare is now, not two days prior to landfall. Right?

Ernst Rauch:

Absolutely, yes.

Mark Maroon:

There is no doubt about it. Well, I think that might be a good place to go ahead and wrap this up. So, Ernst, thank you so much for joining us today.

Ernst Rauch:

You’re welcome. It was a pleasure.

Mark Maroon:

And folks, if you liked this episode, please subscribe to our podcast for easy access to past and future episodes of Climate Check. And as always, for more information, head on over to munichre.com/climatecheck. See you next time!