Increase Community Protection from Extreme Weather Events

EXTREME WEATHER can be a serious threat. People are killed and injured, property is damaged.

Unfortunately, changes in the global climate are expected to affect, and may now be affecting the frequency and severity of extreme weather events. That’s why Canada’s insurers are pressing for increased investments in community protection.

The International Red Cross has a disaster database that has tracked 2,000 severe storms during the 1990s. These killed 330,000 people around the world, and injured or displaced more than 1.9 billion.[ 1 ] This figure includes six million Canadians affected directly by the 1996 Saguenay flood, the 1997 Red River Basin flood and the 1998 ice storm.

The Canadian and international insurance communities are analyzing extreme weather events as they seek answers to critical questions:

  • Why are disaster losses rising at an alarming pace all around the world?
  • How are changes in climate patterns affecting the likelihood of extreme weather?
  • Can insurers improve their ability to predict future damage to homes and businesses?
  • Are there cost-effective investments that will improve ability to resist extreme weather events?
  • Why are concerns about extreme events seldom used to build support for addressing climate change?
  • Should society invest more in disaster prevention and adaptation to extreme events?

Loss of life, injuries and property damage are resulting from these events are unacceptably high. However, the knowledge exists to better protect people and property. Severe storms do less damage when they strike a resilient community, so it is possible to prevent most of these events from becoming disasters.

Unfortunately, there has been a dramatic increase in property damage in recent decades, with losses increasing nine-fold over the past four decades (after adjusting for inflation). If this alarming trend were to continue, by “around 2065 the world’s wealth would be totally consumed by the cost of natural disasters. Clearly such a ‘limits to growth’ projection is naïve… however, there is no room for complacency.”[ 2 ]

Insurance plays a major role in disaster recovery in Canada and other wealthy nations. Homes, vehicles and businesses are insured to cover damage due to most types of extreme weather. Flood damage to homes is typically not included in private insurance coverage, but most other hazards are covered. Schools, hospitals, bridges and other public structures, however, are typically not insured for extreme weather risk because these costs can often be recovered from disaster assistance programs provided by governments.

Although damage around the world caused by natural disasters increased nine-fold since the 1960s, insured losses increased 15-fold, growing from US $7 billion in the 1960s to US $119 billion in the 1990s. The losses in the 1980s were twice those of the 1970s. The losses in the 1990s were four times those of the 1980s (Figure 1). Evidence that this trend is accelerating adds further to the urgency for action. Over the past decade, there have been a number of projects by the United Nations, the World Bank, the Red Cross and others that demonstrate the growing international concern that losses not be allowed to increase further. This includes the UN declaration of the international decade for natural disaster reduction.


This international trend has also been very evident in Canada. Property damage during the 1990s exceeded C$6 billion. Comparable data for the 1960s do not exist, but the information that is available shows Canadian losses increased at a rate similar to the international trend over most of the past four decades. Canadian insurance claims have increased even faster, with most of the largest losses experienced in recent years.

Accordingly, the insurance community has been active in working with other interested parties to establish a national disaster mitigation strategy.

Why are disaster losses rising at an alarming pace all around the world?

Many factors are contributing to the increase in disaster losses. The World Bank and others recognize that the three most important factors are the growth in the number of people living in areas of high risk, ageing infrastructure and climate change.

Many communities have doubled in size over the past 30 or 40 years. Property values have increased even faster. This is most evident in the largest urban communities in Canada and around the globe. Indeed, adjusted for inflation, real property values in major Canadian urban centres have been doubling in value every 15 years, on average, over the past century. The growing concentration of wealth and people in a few major urban centres means that a severe storm that happens to pass through such a centre can cause much more damage today than in the past. Moreover, most analysts predict that this trend of urbanization and rising prosperity will continue, further adding to the risk of a catastrophic loss.

Over the past few decades, infrastructure spending has been declining as a share of economic activity in most countries. This often includes declining investments in storm sewers, flood management and other systems critical for the management of extreme weather risk. Our ageing infrastructure is frequently unable to cope with extreme events, a challenge that is compounded by population growth and increased paving-over of natural systems that previously supported water management. Efforts to regain control over excessive public spending have led a number of countries to reduce weather research, monitoring and analysis. For example, the budget of the Meteorological Service of Canada was reduced significantly during the 1990s. Weather warning systems and public education can be powerful tools to reduce the loss of life and property damage during severe storms, but these investments in public safety are increasingly competing for funding.

Furthermore, the climate is changing. Some events, such as minor winter storms, are becoming less troublesome. Other events are changing in nature; peak spring melt flooding will likely occur earlier in the year. And many other extreme weather events are happening more often and with greater intensity, for example, prolonged summer heat waves. The latest report published by the Intergovernmental Panel on Climate Change shows that these changes are complex and vary from region to region.[ 4 ]

How are changes in climate patterns affecting the likelihood of extreme weather?

Also, sea levels are rising. These trends will continue, and perhaps accelerate, in the years ahead. It remains difficult to predict what impact these changes will have on the frequency and intensity of severe weather. Nevertheless, there is a scientific consensus emerging in a number of areas of keen interest to insurers and others seeking to prevent disaster losses.

This is adding to the risk of flash flooding, and challenging current assumptions evident in urban planning for storm sewers, road design and other public investments in infrastructure. In colder climates this may mean an increase in the risk of very intense winter storms despite the reduction in the frequency of minor snowfalls. The 1998 Canadian ice storm demonstrated how destructive these storms can be.

Trends in severe weather events are notoriously difficult to assess because these events are rare and the historic data are poor. There is no compelling evidence that the frequency or intensity of hurricanes will change because of global warming. Similarly, there is no strong evidence of changes in the risk of tornadoes, thunderstorms and hail. Some studies warn that these events may increase somewhat in frequency and severity, but the evidence to date does not support widespread agreement that a trend is evident. There is agreement that these risks are gradually shifting geographically, with historic storm patterns evident in central and northern parts of the United States likely to become increasingly evident in the southern parts of Canada.

Can insurers improve their ability to predict future damage to homes and businesses?

There have been significant investments around the world over the past couple of decades in models to improve prediction of future weather events. These include global climate models that focus on trends in temperature, rainfall and sea levels, models that can look ahead many decades or even centuries. Regional models provide more refined predictions for specific locations. The Canadian climate models are recognized as being among the best in the world. These models, however, have not been effective in predicting trends in severe weather events such as hurricanes and tornadoes. Rare, but potentially catastrophic, events are seldom studied in these models, yet these are the primary concerns of insurers and others concerned about disaster prevention over the near term.

Fortunately, increased attention has been paid in recent years to the study of extreme events through other means. New tools, such as polarized Doppler radar, provide increased knowledge about the factors that contribute to the formation of extreme events. Also, historic data recording the severity of past events have been used to predict the likelihood of future storms. Some models, such as NHEMATIS developed by the Government of Canada, include detailed information about the location of current buildings, homes and other structures.

Risk Management Solutions, Inc., EQE International and others have designed climate models specifically for the insurance community. These focus on hurricanes, tornadoes, hail and wildfires. Models have also been developed to assess seismic risk. Most of these models have been in place for only a few years, yet they have quickly become important tools for regulators, reinsurers and insurers. Regulators use these models to ensure that disaster exposure is well managed by insurers, that insurance prices are fair, and that the public is well served. Reinsurers are the most intensive users of this analysis because they shoulder a very high share of the risk. Insurers operating in a national market purchase insurance from global reinsurance companies who can spread this risk across a wider geographic base, with severe weather risk naturally a large element of this relationship. Modeling has also become an important mechanism for primary insurers to build confidence in their ability to manage severe weather exposure and effectively use reinsurance.

Rather severe storms and hurricanes that have occurred in the past couple of years are testing whether these insurance systems are feasible. They also provide data that can help determine how to more efficiently increase efficiency. These resources have evolved into a tool that can help insurance companies by providing data they can more effectively utilize. They have also assisted in the targeting of recent research efforts to ensure that weaknesses discovered in the models are addressed. The insurance community has invested heavily in severe weather research over the past decade, reflecting its belief that this is improving its ability to better manage the risk of extreme events.

Are there cost-effective investments that will improve ability to resist extreme weather?

Early action to address climate change is essential, in part to address the growing threat of rising losses from extreme weather. Others are better qualified than insurers to determine the specific actions that will be most effective, but the insurance community does believe in the importance of action now, ideally within an internationally framework that is widely accepted.

In addition to an emissions strategy, perhaps like that dominating the Kyoto agreement, insurers believe that adaptation is a critical element of an overall strategy to manage climate change and severe weather risks. Indeed, international discussions would benefit if there were increased attention to adaptation.

A disaster mitigation/extreme event adaptation strategy should include:

  • citizens informed and knowledgeable about severe weather risks in their community;
  • severe weather warning systems effective in alerting those at risk;
  • well-enforced and climate-appropriate building codes;
  • land-use planning appropriately enforced to reflect the hazards in the community;
  • investment in structural safety measures such as dams, levees and seawalls; and,
  • non-structural measures such as planting to reduce beach erosion and support healthy marshes.

Adaptation to extreme events can, and should, be managed at the community level with appropriate regional, national and international supports.

The Winnipeg floodway is the most visible Canadian investment in adaptation to extreme events. The floodway has been remarkably successful, contributing to the reduction in flood damage losses that have been more than 20 times greater than the cost of the structure. International studies consistently show loss reductions more than twice the initial cost. Indeed, extreme weather adaptation and disaster prevention investment proposals should perhaps qualify for public funding only when they can clearly demonstrate such clear cost effectiveness. Public safety and disaster prevention are sound investments.

Insurers have taken the lead in pressing for the establishment of a national disaster mitigation strategy. This has included discussions with federal and provincial leaders, work with the Red Cross and other interested agencies, and liaison with the disaster research community. A national strategy should include more funds to invest in community protection infrastructure and also increased public education. The modest costs involved should be more than offset by reduced disaster damage.

Why are concerns about extreme events seldom used to build support for addressing climate change?

There is widespread public acceptance that extreme events are happening more often than in the past. Also, there is strong support for public investments in disaster prevention. Canadians are working toward the implementation of a national disaster mitigation strategy, a project that enjoys support from the insurers and others in the business sector, the Red Cross and others in the not-for-profit sector, the research community, and the federal and provincial disaster-management community. Similar initiatives have been successful in the United States and elsewhere, where considerable resources have been directed to disaster prevention and adaptation to extreme events. It remains unclear why efforts to build a public consensus to address climate change remain largely in-dependent from the growing international interest in confronting extreme weather risk. Visible local actions to better protect residents from extreme weather known to threaten their community can and should be a central element to a comprehensive strategy to address change in the global climate.

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*  Paul J.E. Kovacs is Senior Vice-President and Chief Economist, Insurance Bureau of Canada, and Executive Director, Institute for Catastrophic Loss Reduction.

 1.  M. Day and J. Walter (eds.), World Disasters Report 2000 (Geneva, Switzerland: International Federation of Red Cross and Red Crescent Societies, 2000).

 2.  A. Dlugolecki, “Climate Change and the Financial Services Industry,” Insurance Economics (The Geneva Association, January 2001), pp. 18-20.

 3.  Federal Emergency Management Agency (FEMA), Report on Costs and Benefits of Natural Hazard Mitigation (Washington, D.C.: FEMA, 1997).

 4.  IPCC, Climate Change 2001: The Scientific Basis, Contribution of Working Group I to the Third Assessment Report of the Intergovernmental Panel on Climate Change (New York: Cambridge University Press, 2001).

 5.  D.S. Mileti, Disaster by Design: A Reassessment of Natural Hazards in the United States (Washington D.C.: Joseph Henry Press, 1999).