2011 Sustains Greatest Disaster-Related Economic Losses in History

"Nature is stronger than any of our designs. And nature resists our control." -- Michael Pollan, Graduate School of Journalism, University of California at Berkeley{1}

There was no shortage of bold headlines this year, but for the insurance industry, 2011 will likely be remembered as being the year that experienced the highest economic loss in history from natural catastrophes and man-made disasters.

According to the reinsurance company Swiss Re, preliminary estimates put the total loss at USD 350 billion.{2}

The Sendai earthquake and subsequent Fukushima Daiichi nuclear disaster immediately come to mind, and Swiss Re notes that had Japan been more fully insured, 2011 would also have been the costliest year for the insurance industry, which took a USD 108 billion hit from the slew of catastrophic events that befell the world over the last 12 months.

But this year, which saw the aftermath of the 2004 Indian Ocean earthquake, Hurricane Katrina and the Kashmir earthquake, ranks as the second most expensive year for insurers after 2005, which cost the industry USD 123 billion.

HUMAN TRAGEDIES, THEN HUGE FINANCIAL HITS

"2011 is going down as another year of very tragic and costly earthquakes," said Swiss Re Chief Economist Kurt Karl. "Unfortunately earthquake insurance coverage is still quite low, even in some industrialised countries with high seismic risk, like Japan. So on top of people losing their loved ones, societies are faced with enormous financial losses that have to be borne by either corporations, relief organisations or governments and, ultimately, taxpayers."{3}

In addition to the Japan earthquake, Mother Nature took a severe toll in 2011 with drought in East Africa, the Christchurch earthquake in New Zealand and flooding in Thailand, Brazil, South Korea, Singapore, Southern Africa, Columbia, Pakistan, China, the Philippines, Canada, France, Italy, Ireland and Australia. In the United States, the Mississippi and Missouri rivers flooded, as did the Musselshell River in Montana and Lake Champlain in New York and Vermont. The New York Times called 2011 "one of the most bizarre weather years in American history."{4} 

SAFETY FIRST: THE MOVE TO GREEN ENERGY WILL SAVE LIVES

But many of this year's disasters were man-made, and they mainly stem from our continuing reliance on fossil fuel: the Yellowstone River oil spill in Montana, the Huizhou oil refinery explosion and the Bohai Bay oil spill in China, the Little Buffalo oil spill in Alberta, the Nahal Zin fuel leak in Israel and the Pembroke oil refinery explosion in Wales.{5}

We can't control Mother Nature, but we can transition from a fossil fuel-based economy to one based on renewable energy. Green power not only avoids carbon dioxide emissions that cause global warming, but is renewable. The wind, the sun, the ocean, geothermal energy—these sources of power will be here much longer than the finite fossil fuel that we're extracting from the Earth. And as if that weren't enough, renewable energy is much safer.

"Extracting the fuel, generating the power and distributing the power are more dangerous in fossil fuel energy than renewable energy," notes Steven Sumner of Duke University Medical Center in Durham, North Carolina.{6}

It's a good sign then, that for the first time, renewable energy has overtaken fossil fuel in new power plant investments, according to Bloomberg News. "The progress of renewables has been nothing short of remarkable," said Achim Steiner, executive director of the United Nations Environment Programme (UNEP). "You have record investment in the midst of an economic and financial crisis."{7} 

COMING UP: THE POINT OF NO RETURN

Frank McLachlan, the CEO of GCube Insurance, an insurance underwriting agency for the renewable energy market with offices in London and California, said in May that the disaster-ridden year "will undoubtedly see insurance companies hike premiums in a bid to claw back cash after some big payouts," noting that "the insurance sector for renewable energy {is} becoming ever more competitive."{8}

But seeing as renewable energy is much safer than fossil fuel, will there be as much to insure in a low- or even zero-carbon economy? Considering that the International Energy Agency has given the world five years to reach irreversible climate change unless our fossil fuel infrastructure isn't rapidly changed, that's a question that can wait for an answer.{9}

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NOTES

1. Pollan, Michael. The Botany of Desire, PBS documentary directed by Michael Schwarz, based on the book by Michael Pollan of the same title, 2009.

2. Swiss Re, "Sigma – preliminary estimates for 2011: natural catastrophes and man-made disasters caused economic losses of USD 350 billion and cost insurers USD 108 billion," December 15, 2011.

3. Ibid.

4. Gillis, Justin. "Harsh Political Reality Slows Climate Studies Despite Extreme Year," New York Times, December 24, 2011.

5. Wikipedia.com. 2011 Industrial Disasters, retrieved December 28, 2011.

6. Callaway, Ewen. "Green power safer for workers than fossil fuels," New Scientist, August 19, 2009.

7. Morales, Alex. "Windmills, solar panels lead pack in attracting investment," Vancouver Sun, November 25, 2011.

8. McLachlan, Frank. "The Last Word: Financing Renewables," Renewable Energy World, May 31, 2011.

9. Harvey, Fiona. "World headed for irreversible climate change in five years, IEA warns," The Guardian, November 9, 2011.

image: oil-stained logs along the Yellowstone River (credit: Environmental Protection Agency)