Hurricane Irma could be the most expensive storm in U.S. history. Lloyd’s of London estimates that the total cost could reach $131 billion in insured losses. History strongly suggests that a great deal more losses won’t be covered by insurers. In 2011, when the force of Mother Nature cost mankind a record $380 billion, less than a third of the damage was covered by insurance.
So, given the risk, why don’t people carry more insurance against disasters? For starters, insurance is less accessible and less affordable for people in poorer nations. Also, many people expect the government will compensate them for damages in natural disasters. This is one reasonwhy insurance demand is low in earthquake-prone regions in, say, Italy and Turkey.
In the United States, only 41 percent of households have the flood insurance they’re supposed to carry, according to the Associated Press.
With insurers covering only about a third of the damages worldwide, the protection gap is substantial. Government-created organizations like the U.S. flood program, the California Earthquake Authority and the Texas Windstorm Insurance Association act as insurers of last resort, offering coverage the free market won’t provide.
According to reinsurers such as Munich Re and Swiss Re, which help primary insurers shoulder costs from disasters. Swiss Re reported that the number of “natural catastrophes” has risen steadily since 1970, cracking triple digits for the first time in 1987, peaking at 199 in 2015 and totalling 191 last year.
Of course, reinsurers have an incentive to paint the threat as growing. It’s also possible that some disasters recorded today would have gone unnoticed in decades past. Of the more objective sources, the World Health Organization says that the number of disasters has been declining over the last 15 years while the United Nations Office for Disaster Risk Reduction reports a rise to 346 in 2015 from 205 in 1983.
Scientists largely agree that global warming results in fiercer storms, if not more of them. That’s not the only reason storm damage is rising. After a period of intense coastal development and more expensive buildings in many parts of the world, about three billion people, almost half the world’s population, now live within 200 kilometres (124 miles) of a coastline. In a similar vein, the dense packing of cities raises the stakes for events like earthquakes and heat waves.
According to Munich Re, the earthquake and following tsunami that hit Japan in 2011 tops the list of the 10 most costly natural disasters since 1980, with an economic loss of $210 billion. That’s followed by Hurricane Katrina in 2005 with $125 billion (equivalent to $160 billion today), most of that due to the storm surge that caused breeches of levees in New Orleans.