Natural disasters

Expert Voices

Climate change is exacerbating insurance protection gaps

Power line poles and lines downed by the passing of Hurricane Maria lie on a sidewalk in San Juan, Puerto Rico on November 7, 2017.
Downed power lines and poles after Hurricane Maria in San Juan, Puerto Rico, on November 7, 2017. Photo: Ricardo Arduengo/AFP via Getty Images

Of the $337 billion in insured losses from disaster events in 2017, $330 billion was caused by natural catastrophes, marking a nearly 90% increase from the previous 10-year average. If 2017 was an annus horribilis for the world and the risk-finance industry, which covered $144 billion of these losses, 2018 is on track to be even worse, since this is the year insurers will directly incur these costs on their balance sheets.

The big picture: Research shows that the world’s cities can expect on average $320 billion in lost economic productivity each year because of climate-related risks — climate change, floods, droughts, wild fires and heat-island effect, among others. Meanwhile, because more than 60% of these direct and indirect costs are not typically covered by insurance, insurers and public finance are in retreat as suppliers of last resort. For example, 60% of FEMA claims in Puerto Rico have been denied. Even against predictable threats like floods, earthquakes and wildfires, the protection gap is massive.

Some Puerto Ricans spent 11 months without power

Tourists walk along a street with no electricity.
Tourists in Old San Juan in April. Photo: Jose Jimenez/Getty Images

After 11 months, the last residential customers of the Puerto Rico Electric Power Authority are being reconnected. But the island's electricity system isn't in much better condition than it was before Maria cut power to every home and business, the N.Y. Times' Frances Robles reports from Ponce, P.R.

The big picture: After $3.2 billion, 52,000 new electrical poles and 6,000 miles of wire, "many billions of dollars more must still be spent to reconstruct the system." And José Ortiz, the new chief executive of the power authority, known as Prepa, "estimates that up to one-quarter of the work done hurriedly to illuminate Puerto Rico after the storm will have to be redone."