Page 14 - Digital Edition SIRC Supplement

SPECIAL FEATURE – NAT CATS
Could the next Katrina-type event
be in Asia rather than in the US?
Hurricane Katrina struck the Gulf Coast of the US in August 2005. It remains the largest-
ever windstorm loss and the costliest disaster in the history of the global insurance
industry, causing as much as US$125 billion in overall damages and over $60 billion in
insured losses. Could this type of catastrophic event occur in Asia? We find out from
Allianz Global Corporate & Specialty SE (AGCS).
Asia’s increasing assets and its booming population
clustered around tropical storm hotspots in the face
of intensifying storm activity means the potential
for larger windstorm losses across the region continues to
increase.
This was not the case 10 years ago as the top 10 global cities are the most important drivers of the overall increase in
in terms of assets exposed to coastal flooding due to storm surge exposure. Exposure rises most rapidly in developing countries,
and damage due to high winds were Miami, Greater New York,
New Orleans, Osaka-Kobe, Tokyo, Amsterdam, Rotterdam,
Nagoya, Tampa-St Petersburg and Virginia Beach. These cities
contain 60% of the total exposure, but the total exposure comes
from only three countries: US, Japan and the Netherlands.
However, based on projections for 2070 – the exposure
landscape looks very different with asset exposure forecast to
grow dramatically, reaching $35,000 billion by the 2070s; more
than 10 times the level around Katrina and rising to roughly
9% of projected global GDP in this period.
In the 2070s, the top 10 cities would be Miami, Guangzhou,
New York, Kolkata, Shanghai, Mumbai, Tianjin, Tokyo, Hong
Kong and Bangkok. Meaning, Asian cities will account for
80% of the top 10 exposed locations in future with four of
these locations in China (including Hong Kong) alone. Tianjin
is the seventh top city in the world ranked by asset exposure to
12 SIRC Supplement • November 2015 • www.asiainsurancereview.com
coastal flooding and wind damage in future. The impact of a
severe windstorm event in the area would obviously be much
more widespread and devastating than the Tianjin blasts that
occurred in August.
High exposure accumulation
Population growth, socio-economic growth and urbanisation
as development moves increasingly into areas of high and
rising flood risk.
A study by the Texas A&M and Yale Universities found that
by 2030 the amount of developed low-elevation coastal land in
China would have increased by over 60,000km2 since 2000.
In addition, the population in Asia is set to double by 2050
– particularly in urban coastal areas. An increase in prosperity
also means the number of people defined as “middle class”
is expected to double between 2009 and 2020. And future
increases in income are likely to double tropical cyclone
damage even without the impact of climate change, according
to “The Impact of Climate Change on Global Tropical Cyclone
Damage” report.
Underinsurance a major issue
The situation is exacerbated by the fact
that growth of exposures is far outpacing
take-up of insurance coverage, resulting
in a growing gap in Nat CAT – including
windstorm - preparedness and response.
For example, Haiyan is the costliest
tropical storm event in Asia by overall
losses ($10.5 billion) in the past 35 years.
However, only approximately $700 million
of this was insured. However, AGCS sees
a growing trend in rising insured losses
from Nat CATs worldwide. The average
annual cost of insured claims from Nat
CATs has increased eight-fold since 1970
(up from some $5 billion in the 1970s and
1980s to over $40 billion in 2010). The
main reason is economic growth: property
values are rising, population density and
insurance penetration are increasing,
often in high risk areas – a trend that is
compounded by the fast growth of some
Asian economies in CAT-prone regions.
China – biggest flood potential
Based on AGCS data, China has the
biggest flood loss potential for industrial
parks with estimates suggesting 52%
are at risk of river flooding and 25%
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