Natural Disasters: Are They Truly Increasing?
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Locking a money for the rest of us. This is a personal finance show on money how IT works, how to invest IT and how to live without worrying about IT. I'm your host David's dying today he is episode four forty four.

It's title natural disasters. Are they truly increasing? Last week, a deadly wildfire broke out in mali, killing at least ninety nine people.

IT was the most deadly wildfire in the U. S. In more than a century. The town of lahaina, a town i've been to, and I suspect many of you have been to and traveling to mali, was essentially obliterated. IT has a population, or had a population of thirteen thousand.

IT was the capital of the high kingdom back in the one thousand nine century. And yet this wood fire came down the mountain slope and wiped out the town, killing many individuals. Reasons for the fire why was so powerful was IT was a period of drought in mali.

That personal mali was considered abNormally dry, but gently, mali doesn't get a whole lot of rain on its outside. In the summer, there was also fuel for the fire from agricultural land that had been abandoned, and so there was grasses and shrubs to fuel the fire. And then there was the wind as her kinda a passed mari at a distance, but brought super strong winds had came down the mountain.

This was a tragic event, and I was curious whether wildfires have been increasing around the world. And I was surprised to find that, no, the number and extent of what fires globally is in decline. I'll linked to some data in the show notes from the corporate atmosphere monitoring service that traces and has been tracking this data since early two thousand.

Three, looking at annual global total wildfire carbon emissions, carbon dioxide put off by the fires. And there is a bar chart there that shows the trend is down. In twenty twenty two, up until december ten, there was around fifteen hundred mega tons of carbon emissions produce by word fires.

A research paper I found by eight coauthors published in twenty seventeen found that the global burned area, this case acid, was down twenty four percent in the eighteen years that they studied up until twenty seventeen. Why is that? Well, IT turns out that over the roughly two decade period, the population in the world grew twenty five percent, but the amount of agriculture production increased.

Forty percent more land was used and turned into agriculture. They have found another researchers found that when there is increased investment in agricultural areas, IT reduces fire activity. Now that depends in in portions of asia where there is widespread burning of agricultural waste that has seen increased fires in carbon emissions.

But other areas, such as brazil, where areas have been turned over to to livestock, that actually suppresses the fire activity because the council grass and IT reduces the fuel load. So the overall trend in wood fires is down, but IT varies from year to year. And the reality is when there's a big water fire like a male, gets huge press in the media, as IT should.

But there are few new stories when an area doesn't have a wildfire. Last year in france, there were a great number of wildfires with carbon emissions five times greater than I had been in the past twenty years. But even there, the trend, if we look at the trend in spain, portugal and france, twenty twenty two is a chAllenging year for wdx res.

But the trend is flat to down the cute to burn area in twenty twenty three. So far, that average will be below average of the past twenty years. Yet somewhere like greece this year, twenty twenty three, has seen the burned acres upwards of three times more than usual canada, where a lot of that while fire smoke has drifted into the U.

S, has seen while fire this yeah seven times greater than it's average over the past decade. Whether us is likely to see its lowest rate of wood fires going back to twenty twelve, at least at this point through early August, about thirty percent below its decade average. One of the things with this data is it's only twenty, twenty five years sult.

So we don't have the longer term trans to be able to access our welfare, clearly falling. But if there's a reason for that makes sense, the fact that agriculture areas are increasing and that is a continuing trend while fires have probably come down. What fires are an example of a complex adaptive system.

A complex adaptive system is a system IT has multiple interconnected agents, and those agents can act, they can adapt. And because that can adapt as their environment changes, they make traces. We can see emergence or patterns that emerge or behaviors that emerge.

And there can be self organization without anybody telling people what to do. We get some just natural self organization as well as non linear, where a small change can produce a very large impact. And there's feedback loops where an asia makes a choice or or something happens, another agents react to that. And that can spin into a trend that that amplifies IT or something that perhaps stabilized somewhere.

And and whether is a great example of a complex adaptive system, the elements that contributed to the mary wood fires, including human elements, the farms that had been abandoned, how the the mitigation efforts that have been put in place or not, those are contributed to essentially a combustible situation where we had this massive deadly one fire. That brings up the question though, what about the number of natural disasters overall? Are they increasing even as global wildfires are decreasing? Yes, IT turns out the actual number and severity of natural disasters is increasing.

In the source for that are companies that have the greatest financial stake in natural disasters. Those are insurance companies, including reinsurance companies. They have skin in the game.

A reinsurance company provide insurance to other insurance companies. That allows the front line insurance companies to cap the risk and sell some of that risk above a certain level to reinsurance companies. Examples of majority insurance companies include swiss and munich's, has been studying the rate of natural disasters since the one thousand nine and seventies.

They have scientists and obviously insurance experts, and they're looking at a wide range of data to understand the whole spectrum of natural hazard cutting, hurricanes, thunderstorms, floods, earthquakes, fire. In volta ic erruptive, I saw one study. This was from an I M F. Paper, and they had a chart produced by munk ri.

That went from one thousand and eighty through twenty seventeen and that listed out the different types of natural disasters that geo physical advance would include an earthquake, sunni volcano, metrological events, which would include a cyclone hurry ane or other water storms. A hydrology gc event which would would include flood and then climatological events, which would be extreme temperatures, drought and forest fire. And and if you look from one thousand and eighty to twenty seventeen, the climatological events, forest fires haven't increased all that much, in fact, is essentially flat.

The hydrological events are increasing. So the floods are increasing, as are the media logical events, the hurricane, the thunderstorms that dump huge amount of rain, causing flash floods that has increased. Where's the geo physical, mental earthquakes? Mechanic activity that hasn't really increased to its water related events.

And that ties into climate change. As temperatures warm, there are higher rates of evaporation from water, from soil until we have more evaporation. And then warmer can hold more water vapor. Everyone degree increases sales, and temperature increases the air capacity to hold more water vapor by seven percent.

And as result, we're getting more of these freak thunderstorms that lead to flash flooding where five or eight inches of rain or dump ed within a couple of hours that showing up in in the data from unique, a reinsurance company that has skin in the game. Thomas blank, whose the chair of munich read reinsurance committee, said climate change is taking an increasing toll. The natural disaster figures for for twenty twenty two are dominated by events that, according to the latest research findings, are more intense or are occurring more frequently.

Prevention and financial protection, for example, in the form of insurance, must therefore be given high priority. There was report in the financial times worked by swiss y and other insurance company. The report by swiss, she's said that the global insurance industry has had fifty billion dollars in losses from natural disasters this year twenty twenty three alone, the worst starts since twenty eleven, and two thirds of those losses in the first half of the year were from convective storms that are characterised by the heavy rains and strong winds, which is consistent with the science of of how warmer temperatures can lead to the more severe localized rain events.

Swiss ri's chief economist said the effects of climate change can already be seen in certain parts like heat waves, drought, floods and extreme precipitation. It's high time to invest in more climate adaption. Now there was something else going on that I thought was interesting in that study.

They mentioned that the first half losses in twenty twenty three were also driven by expansion of urban areas, cities and the rising cost of ensuring them in. This is where we get to a complex adaptive system where we have the climate and the weather events, but we also have individuals choosing where they live. As more people move to a city, IT pushes up the property values.

So it's more expensive than to to fix things when they're destroyed. And then with increased density, there's the potential for more accidents, fires and other incidents that insurance can protect against. There can be more strain on infrastructure within a city that can also lead to accidents that need to be reimbursed if there's a insured event.

And finally, higher concentration of individuals and cities is more traffic congestion, raising the risk of ulna obbo accidents as well as theft in their higher crime rates in urban areas. And all that thinks me it's more expensive to fix the building. So IT isn't just the weather, and an increase of natural disasters is also actions by humans choosing where to live.

In this case, move into the city. In charge. Companies don't just stand by then when they suffer underwriting losses, they raise the premiums. Swiss reproduced a report that showed that insurance companies suffered underwriting losses in twenty twenty two.

And this is just looking at insurance companies in eight major advance Marks to australia, canada, Frances germane, italy, japan, UK in the us, that group from those countries had underwriting losses from two thousand and six to twenty twelve. Then they had a profit in seven out of ten years heading into twenty twenty two. Now an underwriting profit means that the amount that the insurance company had to pay out for claims was less than what they received in premiums.

But if the losses were greater than they received premiums, ms, and that's underrunning loss. Now just because insurance companies experience and underwriting loss as I mean, they lose money because they're also earning a rate of return interest, dividends and capital appreciation as they invest those premiums. And as a result, in those eight countries, the insurance company still made a profit is just that they're return on equity on an after tax basis plumbed in twenty twenty two and now is expected to increase.

Another way that insurance companies mitigate their exposure is Ethan area gets too expensive and they can't charge enough premium to avoid an underwriting loss. Then we'll pull out and we're seeing that in california, where state farm announced this summer that they were no longer going to sell property insurance to businesses and individuals casually insurance and and they said he was due to higher inflation, but a chAllenging reinsurance market. And what they said is rapidly growing catastrophic exposure.

It's wildfires in california, essentially, while global wood fires are down, there's been more catastrophes. Widget res in california build the drought. But also due to where people have moved, they've moved more into areas that are part of what fires.

According to the insurance information institute, california has more than one point two million homes at risk for extreme wdx e, far more than any other state, institute said. The number of Bakers burned in california has grown steadily in recent years as more people are moving into fire prone area of the state. All state also pulled out and will no longer be ensuring homes in california, they said.

The cost to ensure new home customers in california is far higher than the Price they would pay for policies due to load fires, higher costs for repairing homes and higher reinsurance premiums. Again, they're pointing to the reinsurance market that is studying that ultimately, he holds much of the risk and they're seeing the increase in natural disasters and the expense and the exposure their raising rates. Now californians insurance market is chAllenged because all rate increases have to be approved by the insurance commissioners after voters approved proposition one of three in thousand and eighty eight, and they can pass on premium increases. But the state has also mrta um so when there's a war fire, then the state insurance commissioner has said that the insurance company cannot cancel those home policies in that area in that zip code nor can they refuse to renew the policy that so they have to continue with that exposure. Before we continue, let me pause and share some words from this week sponsors.

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So we see that the number of natural disasters is increasing around the world. The insurance exposure to that is also increasing. The companies that have skin in the game, they're seeing that and they're raising premiums to reflect that. The two quotes from the representatives of the reinsurance companies say that climate change has something to do with that. So I spent some time again looking at the intergovernment panel on climate change, the latest ipcc report.

The ipcc was established in one thousand nine hundred eighty eight by the united nations, and they aggregate all the scientific research on climate change, its potential impact, the risk in the response, and so that ipcc doesn't do the research themselves. They're aggregating the research. And then they are assigning levels of confidence to various events, from very high confidence down to a very low confidence, based on whether the experts agree.

And so this is an aggregation of the scientific research. They also put some probabilities to things whether something is very likely or extremely likely. So very likely would be something that has a ninety to one hundred percent probability that happened.

Something is just likely has a sixty six percent to one hundred percent probability of happening. And so they're rating IT and they're coming up with assessments. And I looked at the report to understand what they call creative impact drivers.

So what is happening in terms of natural disasters? Where is the signal amongst all the noise? Because there is natural variable of natural disasters in different regions. And so they're taking everything. And because there's natural variability in the climate, some years are coller than others.

Some years are warmer than others are looking at the averages, trying to figure out where can they a high likelihood of what we're seeing in the natural world is due to climate change. And the results were surprising to me. The areas that they were most confident in IT was highly likely was that the average air temperatures is going up and that there are periods of extreme heat.

There are seeing evidence of that. There are also seeing evidence that c ice is melting. And they are highly confident, based on the scientific consensus, that the rate of co two in the atmosphere has increased.

Beyond that, though, the idea of more river fletchings, land slide, fire weather, severe wind, hail, coastal flooding, coastal oil, heavy precipitation and flood events, if you look at the table, those areas currently and looking out to twenty fifty, the scientific consensus is that the evidence is lacking or the signal is not present, which leads to an overall low confidence rating that those things are occurring. We know that the earth is warming. There's more C O, two in the atmosphere, that the ocean temperature is also warming.

They're highly confident in that and that to see ice is melting, what the result of that will be or what is actually happening. IT doesn't happen yet, which is startling, I guess. But on the other hand, no, because we have the natural variability.

And if we think of that average temperature going up a bell curve, if that average temperature is increasing, that does mean that theyll be more hot days, more extreme hot days, fewer cold days, which means more melting of seas, which can raise the ocean levels. And and they find that there is medium confidence by twenty and fifty that the oceans will rise, but there's no confidence whether that will lead to flooding or not. In upset forty forty two, we were talking about how to invest for the next forty years.

And I mentioned that there's a collective reluctance to take action on climate change that as humans, we have status school bias. We don't like to make changes. There's a level of inertia, and that's understandable.

When you look at the data, it's difficult to make changes, particularly changes that could impact economic growth, could impact lifestyles. When we can see the temperature is increasing, we can see more carbon dioxide in the atmosphere. We know in theory that can lead to more localized flooding, but beyond that, we're not sure yet, which makes IT difficult for individuals to be compelled to take action.

Now we've seen that there are more natural disasters, the rate is increasing, but these are local events like the mali fire. It's leading to higher insurance premiums. So there's there's an impact for us potentially surprisingly, only about half of natural disaster losses are insured.

That's in the develop world. In the developing world is only ten percent. Most households and businesses are exposed to natural disaster risk, and it's something we all have to decide is what do we want to protect against in terms of our our house, in terms of our personal safety. The other thing we need to decide on is do we reduce we're try to limit our co two emissions.

If we look at per person carbon dioxide emissions in the world at four point six metric times per year, high income countries generate eight point seven metric tons per year low in middle income countries, three point three metric tons per year in low income countries per capital sea to emissions zero point three metric tones, the U. S. Is fourteen point six metric tones per person, three times the world's average.

And so when we talk about looking at fifty years, one hundred years as developing countries grothe economy, that's more carbon emissions and more heading the air temperature, more heading of the ocean, more extreme events, more localized flooding events. But again, there's a lot of natural variability, and we don't know where, when or how much we just understand the science behind IT, which means we have to decide individually, particular in the U. S, what actions do we want to take?

Maybe we like we did our cabin and replace a protein heating source with a heat pump that works off electricity, which is primarily generated by renewables, hydro and solar. Maybe we put in more installation in our house or put in Better windows. Maybe when our internal combustion engine vehicle is at the end of its life, we replace IT with an electric vehicle or a hybrid.

Maybe we choose to eat less meat, but take individual actions, just knowing the basic science, even though we don't know what the end result will be other than warmer temperatures. But what that will actually do is there a tipping point? The climate? We don't know. And that's why an apposite four four two, I talked about investing for the long term, assuming will continue to grow the economy around the world, invest in primarily cash low generating assets, so we can get that cash low, that cash flow can grow over time, you can compound.

But to maintain our flexibility are spending flexibility because if there is a tipping point or if one of these natural disasters happens in our area, do we have the flexibility, the reserves, the insurance reserves to protect against that? Because IT doesn't appear these based on the data that it'll be at a global catastrophe. He all at once. IT will be a pocket here, a pocket there, very localized as part of a complex adaptive system that might lead us to change our behavior, both in terms of where we choose to live.

I'm recording this episode in our vehicle, in the woods, up in the mountains, because our neighbor decided to protect against potential forest fire and has a team clearing out brush and cutting out, cutting down trees for Better fire equipment access, and then to protect the house, which leads to incredibly loud chainsaws, is amazing how loud does are. And I couldn't record I get get in our ancient suburban camper and record the episode, an example of a vehicle that we need to get rid of and replace with something more environmentally friendly. Bottom line is natural disasters are increasing.

They are more localized. IT is due to climate change, but the extent of that at a highly confident level isn't yet showing up in the data, the scientific data. The expectation is that you will, but we don't know to what degree, to what extent.

And that leads to inertia among government businesses and households. So then we have to decide individually, do we change how we live, how much we consume and how much carbon emissions do we create for potentially negative events that fifty to one hundred years down the road? That episode for forty four.

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