Climate Change To Boost Economic Losses: US, Philippines Hardest Hit

Side of flooded building with declining orange bar graph painted on it

March 25, 2024 |

Side of flooded building with declining orange bar graph painted on it

A recent analysis by the Swiss Re Institute indicates a looming surge in economic losses worldwide due to climate change, with the United States and the Philippines facing the greatest risks. The report underscores that climate change is set to exacerbate economic vulnerabilities, particularly in countries already dealing with weather-related disasters.

The report, titled Changing Climates: The Heat Is (Still) on, said 4 key weather perils—floods, tropical cyclones, winter storms in Europe, and severe thunderstorms—collectively result in an estimated $200 billion in global economic losses annually.

Currently, the US economy suffers an annual loss of nearly 0.4 percent of Gross Domestic Product (GDP) ($97 billion), while the Philippines endures an annual 3 percent loss of GDP ($12 billion) due to the 4 major weather perils. These figures not only represent significant current losses but also highlight the potential for further intensification of hazards in the future.

Jérôme Jean Haegeli, Swiss Re's group chief economist, said, "Climate change is leading to more severe weather events, resulting in increasing impact on economies. Therefore, it becomes even more crucial to take adaptation measures. Risk reduction through adaptation fosters insurability. The insurance industry is ready to play an important role by catalyzing investments in adaptation, directly as a long-term investor and indirectly through underwriting climate-supportive projects and sharing risk knowledge. The more accurately climate change risks are priced, the greater the chances that necessary investments will actually be made."

Countries characterized by significant gaps in insurance protection and a lag in the implementation of loss mitigation and adaptation measures compared to their economic growth rate are particularly susceptible to heightened risks from intensified hazards. According to the report, fast-growing Asian economies such as Thailand, China, India, and the Philippines are among the most vulnerable in this regard.

While global projections indicate an intensification of flood risk, tropical cyclones emerge as the primary catalyst for major weather-related economic losses in both the United States as well as east and southeast Asia. Presently, the US experiences the highest absolute economic losses from weather events worldwide, predominantly attributed to tropical cyclones (hurricanes). Additionally, severe thunderstorms significantly contribute to these economic losses.

The first step toward cutting losses is to reduce the loss potential through adaptation measures, according to Swiss Re. These measures include enforcing building codes, increasing flood protection, and monitoring settlement in areas prone to natural perils. Ultimately, the extent of losses relative to each country's GDP will hinge upon their future efforts in adaptation, loss reduction, and prevention. See the table below for the top 10 countries most exposed to the 4 weather perils as of today.

Rank Country Annual Economic Loss (% of GDP)
1 Philippines 3.00%
2 US 0.38%
3 Thailand 0.36%
4 Austria 0.25%
5 China 0.22%
6 Taiwan 0.21%
7 India 0.20%
8 Australia 0.19%
9 Switzerland 0.19%
10 Japan 0.18%

Source: Swiss Re Institute

Swiss Re advised that its study does not encompass all weather perils, such as heatwaves, and solely focuses on property losses. With changing climates exacerbating the intensity of weather events, the potential for losses is expected to increase.

March 25, 2024