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GTAG — Business Risks

The Rising Costs of Natural Disasters

Although natural disasters have taken their toll throughout history, there are strong indications that they have become
more frequent and severe in recent decades and that this upward trend is set to continue. In part, this trend can be
explained by growing urbanization, which has led to an increasing concentration of population in vulnerable areas (see
Freeman, Keen, and Mani, 2003). It also reflects the changes in weather patterns — in particular, those associated
with the rise in global surface temperatures — that appear to have increased the frequency and intensity of adverse
weather events, such as hurricanes, floods, and droughts (see IPCC, 2007). With more frequent and intense natural
disasters affecting increasingly densely populated areas, their costs have risen strongly over time (see below).

1950-59 1960-69 1970-79 1980-89 1990-99 1996-2005

Number of events 21 27 47 63 91 57

(billion dollars; constant 2005 prices)

Overall losses 48.1 87.5 151.7 247.0 728.8 575.2
Average loss 2.3 3.2 3.2 3.9 8.0 10.1

Figure 2. The Rising Costs of Natural Disasters 1

4.2 Common Disaster Impacts
Various disasters that commonly occur may result in the loss
of:
• people. If there is significant loss of human life or
unavailability of staff, organizations may not have
the proper personnel to run daily operations.
• Facilities and equipment. Several of the disasters
described above have the potential to destroy or
severely damage operating facilities, manufacturing
plants, offices, and other critical business sites.
• communication infrastructure. Organizations may
not be able to communicate with employees, vendors,
and customers.
• Supplies. This may include power supply, service
from vendors, manufacturing supplies, etc.
• information and it systems. Critical business appli-
cations may not work properly.

1 David Hoffman, “Innovations in insurance can help coun-
tries manage the fiscal impact of natural disasters,” Finance &
Development magazine, March 2007, Vol. 44, No. 1.

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