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The Bulletin

For some, extreme weather means good business

Posting in Government

So far this year, weather events around the world have cost around $85 billion in damage -- that includes things like flooding in central Europe ($22 billion), an earthquake in China's Sichuan Province ($14 billion), tornadoes in the US ($4.5 billion just between May 18-22), and droughts in places like Brazil ($8.3 billion), China ($4.2 billion), and New Zealand ($1.6 billion).

Despite claims that extreme weather events are on the rise, the world's disaster expenditure in 2013 is actually 15 percent below the average over the last 10 years. What's different is that a smaller percentage of the losses this year were insured -- an average of 24 percent, according to reinsurance advisory firm Aon Benfield, compared to 28 percent over the last 10 years.

The upshot for insurance companies is that there is tremendous opportunity in underinsured parts of the world (see map). Indeed, insurance companies are seeing increased interest in catastrophe bonds, also known as "cat bonds."

Even local governments are getting in on the insurance action. Recently the New York Metropolitan Transit Authority (MTA), looking to protect itself against storm surges, issued public cat bonds, using a subsidiary, and raised $200 million in coverage for the next three years. Those who invested in the cat bonds received a relatively stable 4.5 percent yield on their bonds, a better deal than most other investments at the moment.

If extreme weather events do occur more frequently in the coming years, and with so much of the world lacking sufficient insurance, it seems like a good time for both investors and insurance providers to bet on bad weather.

Photos: MR Economic Research, NASA

via [Quartz]

— By on July 28, 2013, 8:00 PM PST

Channtal Fleischfresser

Contributing Editor

Contributing Editor Channtal Fleischfresser has worked for The Economist, WNET/Channel 13, Al Jazeera English, Wall Street Journal and Associated Press. She holds degrees from the University of Pennsylvania and the Columbia University Graduate School of Journalism. She is based in New York. Follow her on Twitter. Disclosure