Why time is of the essence in reducing Cat losses

With total estimated societal losses from natural catastrophes at $130 billion between 1983 and 2024, action needs to be taken now to reduce the cost of future disasters.

“There is no time to delay. All delay is costly,” says Keith Porter, chief engineer at the Institute for Catastrophic Loss Reduction (ICLR). “Every one of those $130 billion could have been spent productively: for education, R&D [research and development], to solve the housing crisis, and to prevent the financial and psychological trauma from natural disasters.”

Porter was responding to a question from Canadian Underwriter about the unsustainability of these losses, and how much time there is for governments to act.

The $130 billion number was included in the recent ICLR report, Societal Loss from Historic Natural Catastrophes in Canada. Porter was among the report’s authors.

The research paper examines total societal losses from disasters, including insured losses. It also looks at uninsured losses and insurance penetration, private sector losses where insurance is not available, public-sector costs to repair utilities and transportation infrastructure, deaths and injuries, and environmental impacts.

It estimates Canada’s insured Cat losses since 1983 account for less than half its total Cat losses — meaning that insurance picks up less than half the cost of these disasters.

At about $9.2 billion per year, Canada’s total losses equate to roughly 3% of annual construction spending, ICLR’s research found.

“Natural disasters absorb about two weeks of construction spending per year,” ICLR says in the report. That means about two weeks of every year’s construction spend is used to repair damage from the previous year’s disasters.

“Losses increase approximately 9.4% annually in constant dollars, doubling every eight years,” the report says. “That growth rate equates with nine times population growth, five times real gross domestic product growth, and three times real construction spending growth.”

So, what can be done to reverse this approximate 9.4% annual increase in losses?

“A lot,” Porter says. “Reversing the 9.4% increase requires action on a muscular, not incremental, scale.”

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ICLR advocates for multilateral incentives to finance climate and seismic adaptation, as well as pre-disaster recovery planning.

“We led the development of a method to calculate and map the nation’s resilience investment gap,” Porter adds. “If we implemented it, we could estimate how much to spend, and where, in a way that would save more than it cost.”

The report also finds losses as a fraction of construction spending grow 5.4% per year, doubling about every 12.5 years.

“Disasters cost an unsustainably increasing fraction of wealth: two weeks of annual construction now, one month per year in 2038, two months per year in 2050, and so on…,” the report says. “Such losses are unsustainable.”

The good news is there are practical options available right now “to solve virtually all of our catastrophe risk problems,” Porter says.

One option is building code improvements. “Good, cost-effective code change requests are creeping through a glacial code-development process,” he says. “Changes that should take years but instead take decades.”

Porter recommends requiring:

• impact-resistant roofing and prohibiting use of brittle siding in places with frequent hailstorms
• wildfire-resistant construction in the wildland-urban interface
• new construction to be built 1.5 metres above the 1% per year elevation of riverine flooding. 

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Retrofit programs could also help.

Porter suggests imitating successful, cost-effective programs such as California’s Earthquake Brace + Bolt seismic retrofit, which ‘bolts’ a house foundation to the building’s frame and ‘braces’ walls in the crawl space under the home with plywood (these ‘cripple walls’ help a house avoid toppling off its foundation during a quake). Oklahoma and Alabama also offer FORTIFIED roof grants for homes built to a certain standard.

“Help people pay for their own resilience,” Porter says. Governments can enable PACE financing for resilience, he says, referring to Property Assessed Clean Energy financing that allows property owners to finance projects to make buildings more resistant to climate impacts. “But doing so requires enabling legislation in some provinces and territories. And it requires topping up the available funds.” 

By looking at societal losses, “one could examine the sum and its components for trends over time or differences between locations or perils,” the report says. “We could then use trends and differences to examine underlying causes, with the ultimate goal of reducing catastrophic losses…”

Jason Contant

Jason has been an award-winning journalist with Canadian Underwriter for more than a decade, including the past three years as associate editor and, before that, as digital editor for seven years.