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Top 10 Costliest Disasters Since 1970 Jiji Press/AFP/Getty Images
To that end, Swiss Re has started speaking about climate risk, not climate change. That the climate is changing has been established in the eyes of the industry. “For a long time,” says Bresch, “people thought we only needed to do detailed modeling to truly understand in a specific region how the climate will change. … You can do that forever.” In many places, he says, climate change is only part of the story. The other part is economic development. In other words, we’re building in the wrong places in the wrong way, so wrong that what we build often isn’t even insurable. In an interview published by Swiss Re, Wolf Dombrowsky, of the Disaster Research Center at Kiel University in Germany, points out that it’s wrong to say that a natural disaster destroyed something; the destruction was not nature’s fault but our own.
In 1888 the city of Sundsvall in Sweden, built of wood, burned to the ground. A group of reinsurers, Swiss Re among them, let Sweden’s insurers know there was going to be a limit in the future on losses from wooden houses, and it was going to be low. Sweden began building with stone. Reinsurance is a product, but also a carrot in the negotiation between culture and reality; it lets societies know what habits are unsustainable.
More recently, the company has been working with McKinsey & Co., the European Commission, and several environmental groups to develop a methodology it calls the “economics of climate adaptation,” a way to encourage city planners to build in a way that will be insurable in the future. A study of the U.K. port of Hull looks at potential losses by 2030 under several different climate scenarios. Even under the most extreme, losses were expected to grow by $17 million due to climate change and by $23 million due to economic growth. How Hull builds in the next two decades matters more to it than the levels of carbon dioxide in the air. A similar study for Entergy, a New Orleans-based utility, concluded that adaptations on the Gulf Coast—such as tightening building codes, restoring wetlands and barrier islands, building levees around chemical plants, and requiring that new homes in high-risk areas be elevated—could almost completely offset the predicted cost of 100-year storms happening every 40 years.
As with Sweden’s stone houses, all of these adaptations cost more money in the short run, but reinsurers must take the long view, and they can drag development along with them. The public, whom the reinsurers refer to as “the original insured,” should be concerned by these hints. Even when they are forced to sign all-perils covers, reinsurers are writing more known risks out of their treaties. Swiss Re publishes an annual report on catastrophe losses; since the 1970s losses have been increasing exponentially. It’s this graph that gives reinsurers pause. The God clause includes less each year because every loss event—every catastrophe—reminds them of the hubris of thinking God doesn’t have any surprises left.
Munich Re’s Trilovszky offers a similar point from a different perspective: The companies that buy insurance are complaining, she says, that insurers and reinsurers have capital but aren’t willing enough to take on new business risks, such as the risk of a compromised brand or stolen intellectual property.
Like many reinsurers, Munich Re underwrites a line called “contingent business interruption.” Essentially, if for some reason a supplier fails to produce a crucial part for a factory, business interruption insurance covers the factory’s owner. The earthquake off the coast of Japan this March happened on a Friday; on Saturday, Trilovszky was doing research on an initial loss assessment when she discovered that a technology company in Louisiana had already stopped operations. It had run out of chips. “That,” she says, “was my eye-opener.”
