Climate change exacerbating natural disasters as PNG crisis exposes protection gap

The ongoing effect of climate change is worsening the impact of natural disasters and costing the agriculture sector billions of dollars, according to a report from the United Nations’ Food & Agriculture Organisation (FAO). Furthermore, the much-talked-about protection gap between insured and economic losses has yet again been starkly exposed in the ongoing humanitarian crisis in Papua New Guinea, following an earthquake in late February. This is despite an ongoing campaign among insurers, reinsurers and insurance regulators to increase coverage in the most vulnerable areas. The FAO report states that agricultural losses from weather events in the developing world reached $96bn between 2005 and 2015, and Asia accounted for half of this amount. And should climate change issues continue to intensify, these losses will increase and also affect other sectors such as forestry and aquaculture, states the report. “This has become the ‘new normal’, and the impact of climate change will further exacerbate these threats and challenges,” commented FAO director-general Jose Graziano da Silva. The report focuses on the agriculture sector and the 2.5 billion people that depend directly on agricultural production, as well as the fact that roughly half of agricultural production is generated by small-scale farmers, fishermen and other communities, where insurance coverage is typically thin. The agriculture sector bore almost a quarter of all the financial losses caused by natural disasters in the decade up to 2015, states the FAO, and these disasters accounted for close to 4% of all potential agricultural output. To make matters worse, the number of natural disasters has been increasing since the 1980s, with an average of 260 each year between 2005 and 2016 in developing countries. Meanwhile, economic losses from climate- or weather-related events have also been growing and while the statistics for 2017 have yet to be calculated, it is expected to be the most destructive hurricane season on record, according to the FAO report. Almost a quarter of all financial losses caused by natural disasters in the decade through 2015 were borne by the agricultural sector, the FAO study shows. About 4% of potential output is lost to disasters. An average of 260 natural disasters occurred in developing countries each year from 2005 to 2016, according to the FAO. Economic losses from climate- and weather-related events have been growing, and while the impact for 2017 has not been calculated yet, the most violent hurricane season on record should confirm the trend, it notes. “The rising incidence of weather extremes will have increasingly negative impacts on agriculture,” the FAO says, referring to harvest and livestock losses, damaged infrastructure and irrigation systems, and outbreaks of disease. Insurers have taken steps to address both the losses caused by climate change and the protection gap, whereby coverage is at its lowest where the risks from natural disasters are at their highest. In 2016 it established the Insurance Development Forum, a working group of insurers, risk managers, and international bodies such as the World Bank and the United Nations. And individual countries are taking action as well - a recent speech from the executive director of the Monetary Authority of Singapore, Daniel Wang, outlined a plan to promote environmental sustainability teams within the country’s insurers. “General insurers are arguably at the forefront of environmental issues as you wear three hats – that of ‘environmental’ risk carrier, risk manager and investor,” said Mr Wang. “Given these roles, insurers should comprehensively consider environmental risks and the impact of climate change in your underwriting and investment decisions.” Meanwhile, a recent Moody’s report highlights the potential risks and opportunities for property and casualty insurers from the effects of climate change, concluding that while there is an increase in the magnitude of potential losses, there are also opportunities for new products. But the enormity of the task ahead of any insurers looking to close the protection gap has been underlined by the humanitarian crisis developing in Papua New Guinea. A 7.5-magnitude earthquake hit the country on 26 February and has claimed more than 100 lives so far. According to the World Health Organisation, the disaster has affected more than 544,000 people, with more than half of those in need of immediate assistance and more than 18,200 currently homeless. And because of a series of ongoing aftershocks, aid groups are struggling to reach the worst-hit areas while houses rebuilt since the original quake have then been destroyed again in the aftershocks. Consequently, aid workers and government officials are faced with rising anger from distressed victims. The disaster has also affected some of the world’s biggest corporates, with Reuters reporting that ExxonMobil is still assessing the damage to its natural gas processing plant located in Papua New Guinea, while power infrastructure has also been badly damaged and the Komo jungle airfield has been closed.

Climate change exacerbating natural disasters as PNG crisis exposes protection gap

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