Public Domain. Source: Pxhere
Florence is bearing down. And folks are worried about the flooding and other damage that will come from the rain and storm surge. In the ‘80s, the average annual cost of natural disasters worldwide was $50 billion per year. Last year, Harvey alone cost over $30 billion. There’s no question that the cost of natural disasters is going up around the world. In the US alone, where we have good insurance data, the losses to our homes from weather events excluding hurricanes in 1980 was about $4.5 billion, and in 2007 it was $12 billion.
Source: Eric Neumeyer, LSE
But how much is this due to storms, and how much is due to the economy? Storm cost more today because economy larger and more involved. There’s greater monetary damage because we’ve built more roads, cars, homes, and businesses. In 1980, the US economy produced $2.8 trillion in goods and services. Now the economy is $20 trilliion. Economically, the storms are having less impact as a percentage of the US economy.
How about globally? Is this just confined to the US? Are storms having less real impact in the US because we’re better prepared, or we’ve been lucky? A researcher looked at global trends and found the same thing. When you look at the world’s economy, which has also grown 6 ½ times bigger over the last 35 years, disaster costs don’t show a significant trend.
Source: Fivethirtyeight, Munich Re
Notably, wealthier places tend to have fewer deaths from natural disasters. Harvey caused 63 deaths, and each one was a tragedy. But Hurricane Maria killed almost 3,000 people, mostly from the delayed recovery from the loss of power and clean water that lasted for weeks and even months afterwards. Puerto Rico simply doesn’t have the resources to recover as quickly as Houston.
Weather is inherently chaotic and unpredictable. But we can be ready for storms, and especially their aftermath. In planning for natural disasters, let’s focus on what we can control – economic strength, emergency preparedness, insurance – rather than what we can’t.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”