Swiss Re Institute: Economic losses set to increase due to climate change, with US and Philippines the hardest hit

29 February 2024 — Daniela GHETU
Swiss Re Institute: Economic losses set to increase due to climate change, with US and Philippines the hardest hit

Climate change will have a larger impact on economic losses in the future, according to Swiss Re Institute. A new analysis of 36 countries ranks the Philippines and the US as the most economically exposed countries today, where hazard intensification is likely to occur due to climate change.

Jerome Jean HAEGELI, Swiss Re's Group Chief Economist, says: "Climate change is leading to more severe weather events, resulting in increasing impact on economies. Therefore, it becomes even more crucial to take adaptation measures. Risk reduction through adaptation fosters insurability. The insurance industry is ready to play an important role by catalyzing investments in adaptation, directly as a long-term investor and indirectly through underwriting climate-supportive projects and sharing risk knowledge. The more accurately climate change risks are priced, the greater the chances that necessary investments will actually be made."

Mind the protection gap

Based on findings from the Intergovernmental Panel on Climate Change (IPCC), Swiss Re Institute's new report "Changing climates: the heat is (still) on" analyses where hazards are likely to intensify and overlays it with its own estimates of economic losses resulting from the four major weather perils as of today: floods, tropical cyclones, severe thunderstorms and winter storms in Europe. This provides a view of the possible direct economic implications if weather-related natural catastrophes intensify due to climate change.

With annual economic losses of 3% of GDP as of today, the Philippines is most impacted by the four weather perils of all 36 countries, while also being exposed to high probability of hazard intensification. The US is second-most exposed. At USD 97 billion (0.38% of GDP) as of today, it experiences the highest economic losses in absolute terms from weather events worldwide and at the same time, there is a medium probability that hazards will intensify.

Only three countries in the Central and Eastern Europe are listed in the Swiss Re Institute's report: Austria (ranks 4th, probabilistic economic losses of 0.25% of GDP, of which 0.16% from floods), Czechia and Poland, ranking 23rd and 24th respectively, with probabilistic economic losses of 0.08% and 0.07% of GDP, entirely caused by floods.

In general, countries with sizeable insurance protection gaps and where the establishment of loss mitigation and adaptation measures lags the rate of economic growth, are most financially at risk from hazard intensification. Fast-growing Asian economies like Thailand, China, India, and the Philippines are most vulnerable according to the report.

Floods expected to intensify, tropical cyclones main loss driver

While flood risk is projected to intensify globally, the main driver of major weather-related economic losses in the US, as well as in east and southeast Asia, are tropical cyclones. Today, in absolute terms, economic losses from weather events in the US are the highest in the world, mostly driven by tropical cyclones (hurricanes). Severe thunderstorms also account for a large share of the economic losses.

The first step towards cutting losses is to reduce the loss potential through adaptation measures. Examples of adaptation actions include enforcing building codes, increasing flood protection, while keeping an eye on settlement in areas prone to natural perils. Ultimately, losses as a share of GDP of each country will depend on future adaptation, loss reduction and prevention.

The flood risk is also projected to intensify globally. In Europe, Poland and Czech Republic rank highest for probability of hazard intensification. This is due to their specific exposures to pluvial and river flood risk. To date, however, economic losses from weather events account for just a small share of GDP in both countries.

However, economic exposure will remain the biggest driver of losses: a country with higher exposure has higher loss potential. In Europe, in absolute terms the potential losses resulting from severe weather events is highest in Germany on account of it having the largest economy and thus highest exposures. When expressed as a percentage of GDP, however, today Germany suffers lower losses than Austria, which has a much smaller economy and thus less exposure, even though the two countries have similar profiles with respect to probability of hazard intensification. Even though losses (in absolute terms) as result of hazard intensification will likely rise in both countries, the losses as a share of GDP of each country will ultimately depend on future adaptation, loss reduction and prevention actions taken, the report reads.

Table: Countries most exposed to four weather perils as of today


As-of-today probabilistic economic losses as a percentage of GDP from the four major weather-peril events, by country, in 2022. Note: These are just the lower bound of potential economic losses, as the study does not cover all weather perils (eg heatwaves) and accounts for property losses only. And, as changing climates fuel weather-event intensity, loss potential will likely rise. Source: Swiss Re Institute, 2024

Read the full Swiss Re Institute's new report "Changing climates: the heat is (still) on".