More bad weather aheadWeather patterns also play a role. La Nina, a naturally occurring climate phenomenon that affects ocean temperatures, helped create the "perfect setup of conditions" for the violent tornado season last year, says Megan Linkin, Swiss Re vice president and meteorologist. La Nina allows cold air from Canada to meet warm, moist air from the Gulf of Mexico while warm, dry air remains in the West. The unstable atmosphere leads to violent weather.
Global warming could raise risks in the future."The sea level has already risen on the East Coast in the last century, and it's expected it will continue to rise," Linkin says. "I think insurers have to be aware their risk landscape is going to change." Rising sea levels bring higher storm surges and increased flooding risk when hurricanes make landfall. Computer simulations of climate change suggest that dry areas will get less rain, and wet areas will get more, Linkin says. That will lead to more flooding in some parts of the country and more droughts in others. The drought that created ripe conditions for wildfires in the West this year was the worst since the Dust Bowl, Linkin says. But such droughts could become more common -- more like 1-in-20 or 1-in-10 year events, versus 1-in-75 or 1-in-100 year events.
Complexity increases riskThe growing complexity of how businesses operate has also changed the risk of losses. A disaster not only affects the businesses it hits directly, but the many businesses in other locations that depend on them for supplies. And because we are so dependent on technology, damage to computer systems and robotics wreaks havoc. Insurers have to look at risk differently, says Andrew Castaldi, Swiss Re's senior vice president and head of catastrophe perils in North America. They must consider all the connections to an industry hit by disaster.
What can we do?The federal government already gives money to states and local communities to prepare for disasters and mitigate hazards. The grants pay for a variety of projects, such as efforts to elevate buildings in flood-prone areas and stabilize soils to prevent landslides. Research shows those efforts pay off, says Kathleen Tierney, director of the Natural Hazards Center at the University of Colorado at Boulder. But better planning and mitigation are needed to reduce losses.
Some states require local governments to consider potential disasters as part of land-use planning efforts. University of North Carolina researchers found such requirements lead to lower insured losses in those communities.But, Tierney says, "The actual situation in most states and communities right now is that land-use planners and planning departments don't talk much to emergency management departments or experts in disaster-loss reduction. Even if they did there may not be political will in a lot of communities to put these measures in place."