The challenge: global disaster losses are increasing

A wide range of datasets from around the world paint a consistent picture: disaster losses have been increasing rapidly in recent decades. Figure 10.1, produced by Munich Re, is illustrative of the more general conclusions. It is important to recognize that disaster losses do not increase in every region at a constant rate. Some regions may see decreasing trends. Disaster losses typically come in discrete, large values and the trend record is driven by the increase in the costs of the largest disasters, such as hurricanes in the United States.

The economic costs of disasters have largely been driven by events in developed countries, due to their greater wealth. However, disasters in developing countries with smaller loss totals can have much larger effects as they may represent a much larger portion of a country's overall economic activity. Loss of life with respect to disasters has decreased significantly over the past century (Figure 10.2). Much of the human toll of natural disasters occurs in developing countries. For example, the December 2005 Indian Ocean Tsunami killed more than 275,000 people across the region, while Hurricane Katrina, the deadliest natural disaster in the United States in many decades, killed fewer than 1,500 people.

The trend of increasing disaster losses has been driven largely by damage associated with earthquakes, floods, and storms. Figure 10.3 indicates that the vast majority of weather-related losses (both insured and total) between 1970 and 2004 are the result of floods and storms.