World economy affected by extreme weather events

Environment - August 29, 2023

Extreme weather events, including heat waves, droughts and floods, continue to set new records and pose challenges for the global economy and society. 

Natural disasters – earthquakes, wildfires, floods, etc. – caused a total economic losses of more than $313 billion globally in 2022. According to a report published by an insurance company, this figure is 4% higher than the annual average for the 21st century. 

Romania second in Europe in terms of consequences of vegetation fires

The same report, which sounds the alarm on the global situation, also shows that Romania does not fare well either in terms of the consequences of vegetation fires – it ranks second in Europe – or in terms of earthquakes, where it is among the main countries at risk of disaster from earthquakes.

According to a report published by AON, an insurance and reinsurance broker, insurance and reinsurance companies covered only $132bn, or 42%, of total losses of $313bn, marking 2022 as the fifth costliest year in history for the insurance industry. These figures – say the authors of the report – highlight an alarming reality, namely an overall protection gap of 58%, which means that almost half of the economic losses caused by natural disasters are not covered by insurance.

In the context of the challenges posed by climate change and the effects of disasters, the role of insurance companies becomes essential to mitigate their economic impact and improve the resilience of affected communities.

“In a globalised world, the consequences of natural disasters extend far beyond the immediate geographical areas of impact. This is a reality that Romania is aware of, even though it is not directly affected by storms and does not experience the same severity of weather phenomena as other regions”, said Eugen Anicescu, CEO of AON’s Romanian subsidiary.

An example of this is the devastating earthquake in Turkey, which, apart from the numerous losses of human life, generated damages of around 90 billion dollars. According to the AON study, only about 42% of the damage caused by the earthquake were covered by insurance.

“The earthquake that took place in February this year is not only a tragedy for Turkey, but also has repercussions at a global level, including here in Romania. When the insurance market is affected in one country, prices will rise not only in that market, but globally (…) At the same time, it is important to discuss losses and damages to properties, whether residential or commercial, and to face the reality that climate risks are a global problem that requires collective and responsible action. We need an integrated global and local strategy to adapt and protect effectively against future climate risks. I think we should also understand that as Romania’s economy grows, so will the amount of damage we will have to cover individually or collectively”, Eugen Anicescu explained.

In addition to the repercussions on insurance prices, the AON study also forecasts that Romania, like other European countries such as Austria, Bosnia and Herzegovina, Bulgaria, Croatia and Cyprus, is at high risk of earthquake catastrophes. The forecast is confirmed by World Bank data, which shows that a large part of Romania’s population is located in areas at high seismic risk. Vulnerable in this respect are also critical transport, energy, water supply and communication services as well as 60-75% of the country’s fixed assets that make a significant contribution to the country’s economic and social development.

Researchers estimate that if Romania were hit by an earthquake as strong (magnitude 7.4 on the Richter scale and lasting about 56 seconds) as the one on the 4th of March 1977, the economic damage would be in the tens of billions of euros, thousands of people would be injured, and those who would lose their homes would number in the hundreds of thousands, says Allana Simpson, regional coordinator for disaster risk management in Europe and Central Asia at the World Bank. In the 1977 earthquake in Romania, some 11,300 people were injured and about 35,000 homes collapsed. Most of the material damage was concentrated in Bucharest where more than 33 buildings collapsed. As the buildings affected by the 1977 earthquake have not yet been reinforced, there is a risk that in the event of a new earthquake the material damage and loss of life will be much higher than 46 years ago. 

In a recent interview with Agerpres, Allana Simpson said that investment in prevention and preparedness are the most important steps Romania needs to take in the current context, so that every citizen knows what to do in the event of an earthquake and can help those in the community in need.

Romania ranks second in Europe after Spain in terms of forest fires

The recent AON report highlights yet another worrying fact: Romania ranks second in Europe after Spain in terms of forest fires. According to the report, in 2022, 163,000 hectares of land burned in Romania as a result of vegetation fires, causing considerable damage and ranking the country second in Europe after Spain, where twice as much land burned, 316,000 hectares.

The area burnt by forest fires in the European Union in 2022 was the second largest in this century.

According to data derived from EFFIS satellite monitoring, the total area burned by forest fires in the European Union in 2022 was the second largest in this century, second only to 2017. The European Forest Fire Information System (EFFIS) put the cumulative total area of the European Union destroyed by fires from January to mid-November 2022 at more than 785,000 hectares, more than double the 2006-2021 average of around 317,000 hectares.

6.4 megatonnes of carbon from EU fires in 2022 alone

CAMS – Copernicus Atmospheric Monitoring Service says the result is in line with its data, estimating total EU and UK fire emissions between the 1st of June and the 31st of August at 6.4 megatonnes of carbon, the highest level for this time of year in 15 years. CAMS pointed out last year that the huge fires raging in Spain and France led to the highest carbon emissions in the June-August period since satellite monitoring began in 2003, with major impacts on air quality in the region.

In September 2022, the United Nations World Meteorological Organization said the interaction between pollution and climate change will affect hundreds of millions of people over the next century and called for concrete and immediate action to mitigate the damage. With climate change and increasing urbanisation, Swiss Re’s research institute estimates that economic losses from flooding will also increase. 

“In 2021 alone, we have seen more than 50 severe floods worldwide,” warned Martin Bertogg, Head of Hazards and Disasters at Swiss Re, last year.

In 2021 alone, floods caused $82 billion (€73 billion) worth of damage globally, company officials said, noting significant gaps in coverage for this risk that could increase with climate change, AFP reports, as picked up by Agerpres.

Unplanned urbanisation increases flood risks

According to World Bank data, flood risks affect an estimated 2 billion people globally, and climate change and unplanned urbanisation will further increase their incidence. Their impact on economies, communities and people can be far-reaching. 

The World Bank has provided support to Romania and Bulgaria for the national update of the Flood Hazard and Risk Maps (HHRI) for the implementation of the second cycle of the EU Floods Directive. This is after the two countries, along with four other EU Member States – Cyprus, Greece, Lithuania and Slovakia – were required to update their hazard maps in 2021.

This Directive provides a general framework for integrated flood risk management and requires EU Member States to identify Areas of Potential Significant Flood Risk (APSFR), carry out detailed hazard and flood risk assessments and flood maps, and develop flood risk management plans with programmes of measures to address flood risk.