, Volume 113, Issue 2, pp 215-237

A trend analysis of normalized insured damage from natural disasters

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Abstract

As the world becomes wealthier over time, inflation-adjusted insured damages from natural disasters go up as well. This article analyzes whether there is still a significant upward trend once insured natural disaster loss has been normalized. By scaling up loss from past disasters, normalization adjusts for the fact that a hazard event of equal strength will typically cause more damage nowadays than in past years because of wealth accumulation over time. A trend analysis of normalized insured damage from natural disasters is not only of interest to the insurance industry, but can potentially be useful for attempts at detecting whether there has been an increase in the frequency and/or intensity of natural hazards, whether caused by natural climate variability or anthropogenic climate change. We analyze trends at the global level over the period 1990 to 2008, over the period 1980 to 2008 for West Germany and 1973 to 2008 for the United States. We find no significant trends at the global level, but we detect statistically significant upward trends in normalized insured losses from all non-geophysical disasters as well as from certain specific disaster types in the United States and West Germany.

Equal authorship. The authors acknowledge support from the Munich Re Programme “Evaluating the Economics of Climate Risks & Opportunities in the Insurance Sector” at LSE. All views expressed are our own and do not represent the views of Munich Re. We thank Eberhard Faust, Peter Höppe, Jan Eichner, Nicola Ranger, Lenny Smith and Bob Ward as well as three referees for many helpful comments. All errors are ours.