Why Nordic businesses should be more concerned by natural catastrophes

Has there been a shift in the Nordics regarding natural catastrophes?

The insurance industry has seen a rising trend in losses due to natural hazards. The insured losses of the past years show an average annual growth trend of 5 to 7 percent, driven largely by individual catastrophes. Urbanization, economic development, inflation, increased construction costs, and disruptions in supply chains have also contributed to the growth. Weather and climate-related events cost the global economy USD 313 billion in 2022. Out of that, only USD 132 billion of these losses were covered by insurance.

The Nordic countries are generally considered less vulnerable to such events, but they are not immune to global changes. Climate change is undeniable, and we should be prepared for more extreme and frequent weather events in the future. Typical perils in our countries include floods and storms. In the future, an event that used to be considered a 200-year flood event could become a 100-year event. Also, with increasing temperatures, we will see rising sea levels and flooding, milder winters causing more severe winter storms. Secondary perils such as torrential rainstorms, hailstorms, and forest fires, as well as their increased severity, should not be neglected when assessing weather-related events now and in the coming years.

This year, we have seen several severe events such as Storm Hans hitting Sweden and Norway in August, causing flooding and severe landslides. Storm Sylvia hit Finland, causing damage, especially in the western parts of Finland. In Denmark, Storm Babet triggered a rapid rise in water levels, especially in the southern parts, causing severe flooding in October and damages in Sweden and Norway as well. We need to be prepared for more severe events as the likelihood of them becoming more extreme increases with climate change.

What can we learn from events that have happened in the United States or other parts of the world?

Hurricane Ian in 2022 was an extremely destructive hurricane and one of the costliest. We should also remember the heavy flooding that affected Australia in 2022. This year, there have been several devastating natural hazard events; severe flooding in Libya and India, wildfires in Argentina, tropical storms hitting Japan, Guam, the Philippines, and Taiwan, Hurricane Otis in Mexico, and others. Europe has had its share as well; Storm Alina impacted Portugal and Spain, torrential rain in May in Italy, Storm Ciaran brought high winds and torrential rains to many parts of Europe. The heat waves this summer should also be mentioned. October 2023 was the warmest October ever documented, and 2023 is expected to be the warmest year on record according to the World Meteorological Organization.

It is evident that we must act and drive change. The Nordic countries are committed to a carbon-neutral future and Nordic industries are implementing and developing various new solutions to transform businesses to increase preparedness for the future.

Zurich has committed to transitioning its investment portfolios to net-zero greenhouse gas emissions by 2050. Sustainable economic growth and supporting communities in becoming more resilient to environmental changes is necessary. Environmental, social, and governance factors (ESG) will play a significant role and become a key consideration in investment decisions.

Climate change will impact and shape macroeconomic and financial stability. Adaptation is needed, as well as measures to mitigate natural disasters. We need to focus more on not only the hazards themselves but also on the exposures and controls. Understanding what is ahead of us and developing effective risk mitigation measures are key. From an insurance perspective, we already see challenges in some geographical areas and restrictions. A question we should all ask ourselves is what if certain perils reach a level where the risk becomes uninsurable?

Are there any emerging risks and exposures to be on the look-out for?

With the changing climate, we need to be prepared for not only the increased likelihood of extreme weather conditions but also to understand the consequences of them.

Secondary perils have become more relevant loss drivers and should be paid much more attention to. We also need to think about the increased risk of plant diseases and pests when the temperature rises. More frequent forest fires can compromise them acting as carbon sinks. Drought, access to water, changes in precipitation patterns, and heat waves may impact agriculture and cause crop losses. On the other hand, warmer weather with increased rainfall can lead to increased humidity in building structures, increasing the likelihood of mold and fungi.

How can Nordic businesses with a global and local presence build resilience?

Climate change and natural catastrophes are an increasingly critical business challenge. Building resilience requires short-term measures from governments, communities, and businesses but also long-term strategies. Mapping the hazard and assessing the exposure is key and not limited to only what the exposure is today but modeling the future as well. Preparedness to such events and developing effective responses to tackle the issues are needed.

In the Nordics, we need to upgrade and strengthen our infrastructure to withstand stronger winds, improve drainage systems, flood protection, and take into account the soil and ground conditions.

The modeling of climate evolution and the creation of climate risk prediction models is crucial to understand the exposure to assets and the potential financial impacts and consequences. Digitalization and data-driven methodologies will support us in understanding how to better prepare for future risks. Zurich Resilience Solutions supports organizations in identifying, assessing, and quantifying current and future climate risks and vulnerabilities, as well as creating targeted resilience plans to mitigate and adapt to climate risks.

For more information about how Zurich can help your company build resilience, please contact Taija Tolonen-Pavlenko, Nordic Head of Property.