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Cost of extreme weather is driving financial and market concern

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The NOAA National Centers for Environmental Information (NCEI) says that 2022 saw extreme weather cost the US $165 billion.

  • Extreme weather events costing over $100 billion are becoming a regular occurrence in the US.
  • Managing the impact of extreme weather events is getting harder due to the increasing costs of replacement, renewal and rebuilding.
  • The cost, both human and financial, of extreme weather events alongside the risk multiplier of climate change must be factored into policy making and investment.

Understanding the cost of extreme weather events plays a critical role in understanding financial impact. As events become more extreme and more regular, there is growing concern that some weather related risks will become uninsurable. At the same time, it’s important to understand the implications of the costs associated with extreme weather events, as that may shift the needle in terms of balancing trade-offs between short-term and long-term risks.

What cannot be ignored is also the human cost of such events. According to NCEI data, 2022 was also deadly, in that the 18 events of 2022 caused at least 474 direct or indirect fatalities—the 8th most disaster-related fatalities for the contiguous US since 1980.

Over the last seven years (2016-2022), 122 separate billion-dollar disasters have killed at least 5,000 people and cost more than $1 trillion in damage. In addition, the cost has been over $100 billion in 5 of the last six years (2017-2022 with 2019 being the exception). One of the drivers of this cost is that the US has been impacted by landfalling Category 4 or 5 hurricanes in five of the last six years, including Hurricanes Harvey, Irma, Maria, Michael, Laura, Ida, and Ian.

Unfortunately the high frequency, high cost, and large diversity of such extreme events also affected people’s lives and livelihoods. This is a concern, says the NCEI, because it hints that the extremely high activity of recent years is becoming the new normal.

2022 tied 2017 and 2011 for the third highest number of billion-dollar disasters. 2022 was also third highest in total costs (behind 2017 and 2005), with a price tag of at least $165.0 billion. The NCIE says that this total annual cost may rise by several billion when the costs of the December 21-26 Central and Eastern winter storm/cold wave are fully accounted for.

18 extreme weather events costing over $1 billion each

During 2022, there were eighteen separate billion-dollar weather and climate disaster events. These events included: eleven severe storm events (tornado outbreaks, high wind, hailstorms and a derecho), three tropical cyclones (Ian, Fiona, Nicole), the Kentucky/Missouri flooding, the late-December Central and Eastern winter storm/cold wave, the Western and Central drought/heat wave and Western wildfires.

The total cost from these events of 2022 was $165.0 billion and was the third most costly year on record, behind 2017 and 2005. The annual costs from billion-dollar disasters has exceeded $100 billion in five of the last six years (2017-2022) with 2019 being the only exception. The total cost of the last seven years (2016-2022) exceeds $1 trillion while the costs for 341 events from 1980-2022 exceeds $2.475 trillion (inflation-adjusted to 2022 dollars).

The costliest 2022 events were Hurricane Ian ($112.9 billion) and the Western and Central Drought / Heat Wave ($22.1 billion). Adding the 2022 events to the record that began in 1980, the US has experienced 341 weather and climate disasters with the overall damage costs reaching or exceeding $1 billion. The cumulative cost for these 341 events exceeds $2.475 trillion.

2022 is the eighth consecutive year (2015-2022) in which 10 or more billion-dollar weather and climate disaster events have impacted the United States. Over the last 43 years (1980-2022), the years with 10 or more separate billion-dollar disaster events include 1998, 2008, 2011-2013, and 2015-2022.

Extreme weather events are on the increase

The number and cost of weather and climate disasters are increasing in the United States due to a combination of increased exposure (i.e., more assets at risk), vulnerability (i.e., how much damage a hazard of given intensity—wind speed, or flood depth, for example—causes at a location), and the fact that climate change is increasing the frequency of some types of extremes that lead to billion-dollar disasters.

In broader context, the total cost of U.S. billion-dollar disasters over the last 5 years (2018-2022) is $595.5 billion, with a 5-year annual cost average of $119.1 billion, the latter of which is nearly triple the 43-year inflation adjusted annual average cost. The U.S. billion-dollar disaster damage costs over the last 10-years (2013-2022) were also historically large: at least $1.1 trillion from 152 separate billion-dollar events.

It is important to keep in mind that these estimates do not reflect the total cost of U.S. weather and climate disasters, only those associated with events more than $1 billion in damages. That means they are a conservative estimate of how much extreme weather costs the United States each year.

From 1980-2000, about 75% of all disaster-related costs were due to billion-dollar disasters, and by 2010, the percentage had risen to about 80%. By 2022, it has risen to roughly 85% of all disaster-related costs, or $2.475 trillion out of $2.850 trillion.

In other words, the increase in population and material wealth over the last several decades are an important cause for the rising costs. These trends are further complicated by the fact that much of the growth has taken place in vulnerable areas like coasts, the wildland-urban interface, and river floodplains.

Vulnerability is especially high where building codes are insufficient for reducing damage from extreme events. This is part of the reason that the 2010s decade is far costlier than the 2000s, 1990s, or 1980s (all inflation adjusted to 2022 dollars).

According to NCEI, climate change is also supercharging the increasing frequency and intensity of certain types of extreme weather that lead to billion-dollar disasters—most notably the rise in vulnerability to drought, lengthening wildfire seasons in the Western states, and the potential for extremely heavy rainfall becoming more common in the eastern states.

Sea level rise is worsening hurricane storm surge flooding. (Read more about changes in climate and weather extremes in the U.S. National Climate Assessment.) Given all these compounding hazard risks, says NCEI, “there is an increased need to focus on where we build, how we build, and investing in infrastructure updates that are designed for a 21st-century climate.”

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