Are storms costing us more?
Photo: Marc Averette. Source: Wikipedia
It sure seems like it. In the ‘80s, the average annual cost of natural disasters worldwide was $50 billion per year. This year, Harvey alone will cost over $30 billion. And Hurricane Irma is still on her way. There’s no question that the cost of storms is rising. In the US, where we have very good insurance data, the insured losses to our homes from all 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 that due to the storms, and how much is due to the economy? That’s a trickier question. Part of the reason a storm costs so much more now is because the economy has grown so much. 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 6 ½ times bigger. In economic terms, the storms are having less impact.
How about globally? Is this just confined to the US? Are storms having less real impact 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 over the last 35 years, disaster costs show no discernable trend.
Source: Fivethirtyeight, Munich Re
Notably, wealthier countries tend to have fewer deaths from natural disasters. So far, Harvey has caused over 40 deaths, and each one is a tragedy. But the flooding in South Asia this month due to monsoon rains is estimated to have killed over 1200 people.
Weather is inherently chaotic and unpredictable. But we can be ready for storms and their aftermath. In planning for natural disasters, let’s focus on what we can control – economic strength, emergency preparedness, insurance reform – rather than what we can’t.
Douglas R. Tengdin, CFA