SINGAPORE - Insured losses from natural disasters totalled about US$120 billion (S$160 billion) in 2022 as climate change and the La Nina weather pattern fuelled extreme storms and floods, Munich Re said on Tuesday.

In the global reinsurer’s annual estimate of losses from natural disasters, including earthquakes, the majority of disasters were weather-related, and the US$120 billion in insured losses was above the five-year trend of US$97 billion.

This points to a growing challenge for the insurance industry to meet the rising costs of climate change-linked disasters.

“Climate change is taking an increasing toll. The natural disaster figures for 2022 are dominated by events that, according to the latest research findings, are more intense or are occurring more frequently,” said Dr Thomas Blunck, a senior member of Munich Re’s board of management.

Hurricane Ian, which devastated Florida, and floods in Pakistan, Australia and China were among the costliest natural disasters. Hurricane Ian killed 150 people and caused US$100 billion in total losses, US$60 billion of which was insured.

In Asia, natural disasters caused US$70 billion in total losses, with only US$10 billion of this insured. This points to a huge insurance gap – losses versus coverage – in the region, Munich Re said.

“In many instances, disaster losses in developing countries in Asia are almost totally uninsured,” it added.

As climate impacts intensify, this is taking a greater toll on poorer nations, which have fewer resources to recover quickly than richer countries.

“Time and again natural disasters hit people in poorer countries especially hard,” Dr Blunck said.

The floods in Pakistan were the deadliest disaster, with 1,740 fatalities, and the costliest in Asia at US$15 billion in losses, only a fraction of which was insured.

Floods in eastern Australia in the first quarter of 2022 caused US$3.9 billion in insured losses, making them the costliest single disaster in the region last year for the insurance industry.

But the losses in Australia continued with more flooding in October, driven by the La Nina weather pattern in the Pacific, which typically brings wet weather to eastern Australia and parts of South-east Asia.

In total, floods in Australia caused losses of US$8.1 billion last year, of which US$4.7 billion was insured.

The impacts are stretching the insurance sector, Munich Re said.

“The continued high level of insured losses is impacting insurers at a time when they are having to deal with both high inflation rates and a shrinking capital base due to rising interest rates.”

Mr Ernst Rauch, chief climate scientist at Munich Re, called for better prevention and early warning systems.

“Also, binding, regulated compensation payments can help protect more people against the immediate financial consequences of disasters,” he said.

Insurers have long called for better insurance coverage for poorer nations and schemes that make small, rapid payouts to people affected by disasters.

But more comprehensive insurance coverage, as well as better building codes, drainage and other adaptation measures, will also be needed in rich nations as climate risks grow, according to a study by the Potsdam Institute for Climate Impact Research (PIK).

The study, published earlier in January in the Science Advances journal, looked at the impacts of hurricanes on the United States and economic risks in the future from an increase in the number of intense category 4 or 5 storms, which historically have caused the most damage and had long-lasting impacts.

The key question is whether insurance schemes can be designed to help areas recover after a major storm, especially if the frequency of these storms increases.

In the US, hurricanes caused more than US$400 billion in direct economic losses from 1980 to 2014, with losses peaking at more than US$150 billion in 2005, the year Hurricane Katrina struck New Orleans.

“There is good scientific agreement that with ongoing global warming, the proportion of the most intense hurricanes will increase. Our computer simulations show that hurricane-induced economic growth losses could more than double in the US compared to the historical period (1980-2014) even if global warming can be limited to below 2 deg C,” said PIK scientist Kilian Kuhla, a lead author of the study.

The authors found that a tax-financed climate risk insurance scheme accelerated economic recovery and was an effective tool to mitigate increased economic losses caused by climate change, said co-author Tobias Geiger, a scientist at the German Weather Service and PIK.

Key design elements are that the insurance scheme must be mandatory, and it also assumed that all assets are insurable against hurricane risks.