Erdem Karaca is Head of Disaster Risk Management, Americas, in New York for Swiss Reinsurance Co. Ltd. He spoke recently Business insurance Reporter Matthew Lerner on the rising costs and consequences of secondary hazards such as floods and forest fires. Edited excerpts follow.
Q: What do the numbers tell us about the increase in secondary hazards?
A: In a given year, secondary hazards usually account for a majority of the globally insured losses due to their relatively high frequency. For example, in 2020 and 2021, more than 70% of the total insured losses from natural disasters globally were due to secondary hazards.
Although we usually associate them with low to medium losses, the Winter Storm Uri in the United States and the floods in Germany and surrounding countries in July 2021led to more than $ 10 billion each insured loss.
Q: Do secondary hazards need to be considered in a corporate risk management program along with disaster risks?
A: Certainly, because they usually lead to higher losses in a given year in relation to peak risks and their potential to create relatively serious losses of several billion.
This can be especially important for less diversified portfolios, such as regional insurance companies that may be more exposed to the effects of certain secondary hazards such as forest fires in the western United States or severe convective storms in the southern and central United States.
Q: How fast and big is the fire threat growing? Need more resources and attention, such as model research?
A: Losses from forest fires have increased extremely rapidly due to climate change as well as exposure changes and the fact that more people live in areas exposed to forest fires. Unlike many other disasters, the risk of forest fires is affected by a confluence of natural and artificial factors such as climate change and variations, as well as firefighting and mitigation measures, ranging from fuel purification to emergency power outages by electricity companies.
Q: Can automation help with any of these challenges?
A: Automation and improved data collection efforts are ongoing or already in place in the industry. Some of these, for example, are aimed at improving the resolution and quality of exposure data via satellite images to better assess risks, which is usually more important for certain secondary hazards such as flooding due to their highly localized nature.