Rising Tides, Rising Costs

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

By |2017-09-01T07:06:29+00:00September 1st, 2017|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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