Natural and environmental disasters,

buildings are designed to be especially earthquake resistant, and, for example, dams and nuclear plants are not built in such zones, etc. Natural disasters, however, are not always predictable. They sometimes occur in places where people are not quite prepared. The example in the box below proves that some natural disasters may hit even powerful economies hard. A single hailstorm caused $5 billion damage to Germany in 2013.

The most expensive event for the insurance industry in 2013 involved the hail-storms that hit regions of northern and southwestern Germany between 27 and 28 July. The fi rm noted that it was the most costly hail event in the country’s history. Insurance losses from heavy hailstorms in July and August in Germany totalled $4.1bn, with an economic loss of $5.2bn. The hailstorms in late July, the fi rm said, alone accounted for $3.7bn of insured losses, with an economic loss of $4.8bn. - See more at: http://www.theactuary.com/news/2014/01/munich-re-2013-insured-catastrophe-losses-below-average/#sthash.TWTl17k8.dpuf

According to the World Economic Forum (2011) the top 10 risks by likelihood and impact combined are listed in ranked order below:

1. Climate change 2. Fiscal crises 3. Economic disparity 4. Global governance failures 5. Extreme weather events 6. Extreme energy price volatility 7. Geopolitical confl ict

8. Corruption 9. Flooding 10. Water security

The list clearly indicates how broad the range of threats that mankind has to face in the twenty-fi rst century is. Natural disasters, social inequality, fi nancial crises and corruption are all found among the sources of threat. The economic signifi cance that the illegal business sectors that endanger mankind have is surprising. Considering that $10-30 bn. would be enough to save Earth and the size of the market for illegal drugs is nearly $300 bn., we may feel sorry about man’s foolishness.

Counterfeit pharmaceutical drugs: 200 Prostitution: 190

Marijuana: 140

Counterfeit electronics: 100 Cocaine: 80

Opium and heroin: 60 Web video piracy: 60 Software piracy: 50 Cigarette smuggling: 50 Human traffi cking: 30 Environmental crimes and natural resources trade: 20 Logging: 5

Art and cultural artefacts: 5 Small arms: 1

Table 6-2. Rough estimated market size of illicit goods based on public sources (in USD billion) (World Economic Forum, 2011, p. 23.)

Tom Massey, director of RWE Power, admitted in reply to a question that

‘Fifteen years ago, companies were saying that climate change was not rel-evant to business. You could not measure it, companies had no individual re-sponsibility for it and there were no global regulations to control it. Many com-panies argued it was not happening at all. Scientifi c evidence and government action have fundamentally changed this scenario.’

In the fi eld of environmental protection we have become accustomed to the fact that any signifi cant and dangerous problem that is recognized by science or the public is initially denied, or stakeholders attempt to neglect it. The car-cinogenicity of asbestos had long been proven by science when large building material producers were still insisting that slates and asbestos-cement pipes were harmless. It also took a long time to convince economic actors that halo-genated hydrocarbons damage the ozone layer, and to limit or prohibit their production and use.

The front page of the world-renowned economics periodical The Econo-mist has hardly featured anything but climate-change-related news for the last couple of years. Still, it is rather certain that it is not these articles but rather those about extreme weather events (like the 2005 Hurricane Katrina that killed more than 1800 people and fl ooded the city of New Orleans) that call the attention of the public to the potentially disastrous impacts of climate change. The tsunami that followed the Great Sumatra-Andaman earthquake which killed 225,000 people has had a more signifi cant effect on humanity than all the UN development summits that have been held for years. These phenomena have made the public realize that, in spite of all our ingenuity, humanity does not ‘rule over’ nature. It took more than 225,000 lives to make us consider that all we have ‘achieved’ so far is to create a weapons stockpile which, even in the case of an accidental misunderstanding, is powerful enough to destroy civilization. We have not, however, developed anything to protect us from drought-triggered famines, or AIDS, and even less from earthquakes, the latter which we cannot even forecast. Even the most sophisticated models fail to cope with nature’s

‘inventiveness.’

We are surrounded by natural and industrial disasters. The threat is grow-ing continuously despite humanity’s enormous effort to avoid risks. Figure 6-1. makes it obvious that even although international effort has increased, industrial disasters have not become any less frequent. The waves stirred by Hungary’s 2010 red mud catastrophe had not even settled before we were already in the middle of a nuclear crisis at Japan’s tsunami-stricken power plant.

Aznalcollar (Spain). Failure of tailings dam retaining wall, 25 April, 1998.

Kolontar (Hungary). Failure of the ‘red mud’ dam retaining wall, 12 October, 2010.

Figure 6-1. Historical overview of accidents and two photographic example (Kerekes, 2011)

Still, the answer to the popular question whether today’s world is actually more dangerous than in the past is rather unclear. Have natural disasters re-ally become more common, or is it just the damage that is caused that has increased? There is no defi nitive answer. As a result of a globalizing world and advanced communication infrastructure, the number of known / reported ca-tastrophes is relatively high, but that does not necessarily mean there has been an increase in their frequency. The total number of victims of these is also not above the average of many years.

Figure 6-2. Columns show the numbers of victims in millions, while the dashed line represents the number of reported events (Guha-Sapir et al., 2011, p. 3.)

Considering per capita damage, the picture is even more confusing. The pop-ulation of the Earth continues to grow exponentially, thus the denominator also grows rapidly. Yet while the number and severity of disasters fl uctuates, there is no clear upward trend. This would suggest a drop in relative risk. The increase in risk, consequently, is instead caused by the rapid growth in wealth, which is also behind the increase in the value of insured damage (see Fig. 6-3).

0 10 20 30 40 50 60 70 80

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995

US$ bn

Economic losses (1999 values) Insured losses (1999 values) Trend economic losses Trend insured losses

152 bn US$

© Munich Re 2000

Figure 6-3. Changes in Economic Losses (green columns) and Insured Damage (blue columns), 1950 to 2000. (Hoeppe, 2000)

Even conservative professionals have no doubt that risks related to climate change have actually increased. Among other phenomena, fl oods are often

associated with climate change and are apparently becoming more and more common in Europe. As evinced by the two tables below, European statistics about the frequency of and the damage caused by fl oods do not fully support the former assumption: although fl oods have indeed become more frequent, both the numbers of people affected and the amount of damage has fallen during the last ten years. The improvement indicated by these fi gures is, of course, a consequence of effi cient fl ood control measures. As we can see, ap-propriate protection might offset or even reduce the growth in risk induced by the accumulation of wealth.

1980-2009 2000-2009

Number of fl oods 239 147

Number of countries

af-fected 22 19

Number of people killed 1309 511

Number of people affected

(millions) 3.0 1.3

Economic losses (billion

USD) 92.3 45.0

Table 6-3. Floods and their Impacts (total) in European Countries.

(EM-DAT The OFDA/CRED International Disaster Database)

Countries Number of

Czech Republic 6 38 218,800 3.1

Germany 6 29 331,600 14.1

Table 6-4. European Countries most severely hit by Floods (2000-2009) (EM-DAT The OFDA/CRED International Disaster Database)

Nevertheless, the cost of protective measures is very high. Rich European countries already have appropriate fl ood protection systems in place, yet ef-forts still continue. In economically underdeveloped regions like Bangladesh fl oods still cause incredible devastation. The 1970 storm took more than half a million lives; the storm in 1991 killed ‘only’ 138,000, while the 2007 fl ood

caused 1,042 deaths. Although fl ood control protection systems are being built in these regions too, the poor are more severely affected by natural disasters.

Some storms and fl oods can at least be forecast in advance. There are, how-ever, some natural disasters that cannot be predicted, and there is no suitable way of protecting against them. Earthquakes or tsunamis are some of these.

6.4 Managing risk: the business approach