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Increasing exposure of economic assets

Overall and insured losses worldwide, 1980-2013 © Munich Re, 2013: Geo Risks Research, NatCatSERVICE, as of January 2014

Global

Growth in exposure is one of the principal drivers of increasing disaster risk. Simply put, the concentration of individuals and produced capital in hazard-exposed areas today is greater by an order of magnitude than it was 40 years ago (UNISDR, 2013).

Most high-income countries have made regulatory quality and investments to significantly reduce the more extensive layers of disaster risk, but the value of assets in hazard-prone areas has grown, driving an increase in intensive risks (Hallegate, 2011).

Overall and insured losses have been increasing steadily since 1980, reaching an annual average of US$200 billion in 2012 (Munich Re, 2013 and Swiss Re, 2014; see Figure). But, while global economic loss appears to be rising in absolute terms, when adjusted for inflation and expressed as a proportion of GDP, the global increase in economic loss from disasters is not statistically significant. But, regionally, there are differences. Development outpaced growth in exposure in East Asia and the Pacific, resulting in a diminished relative economic loss risk. In contrast, income regions with more sluggish economic growth (like the OECD) saw economic loss rising faster than GDP per capita.

Compared with 1980, absolute economic loss risk to tropical cyclones is estimated to have increased by 262% in high-income countries, 165% in upper middle-income countries, 153% lower middle-income countries and 155% low-income countries. These modelled trends would seem to be confirmed by historical loss data. In absolute terms, over 60% of internationally reported economic losses are concentrated in OECD and other high-income countries, reflecting the concentration of economic assets.

The way in which losses increase with wealth may depend on the level of exposure (Schumacher and Strobl, 2008). In countries with high exposure, losses seem to rise faster in high-income countries than in middle-income countries. This trend likely reflects the fact that in areas of high levels of intensive risk, vulnerability reduction is less effective in reducing risk compared to in countries with more extensive risks. In the case of extreme hazards, exposure sometimes becomes the important factor.

However, while absolute economic loss is concentrated in higher-income countries, in relative terms it is a far greater problem for low-income countries. This confirms that those countries which need to invest the most in additional capacity, new infrastructure, social services and economic development will continue to struggle the most unless disaster risks are reduced. For these countries, development without disaster risk reduction is unsustainable.

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