Why Americans pay so much more than anyone for weather disasters

The United States suffers the world’s second-highest toll from major weather disasters, according to a new analysis — even when numbers are adjusted for the country’s wealth.

The report released late last month by Zurich-based reinsurance giant Swiss Re, which analyzed the vulnerability and damages of 36 different countries, suggests that weather disasters may become a heavy drag on the U.S. economy — especially as insurers increasingly pull out of hazardous areas. Those disasters are driving up insurance rates, compounding inflation and adding to Americans’ high cost of living.

Property damages from hurricanes, severe convective storms, flooding and winter storms cost nearly 0.4 percent of U.S. gross domestic product every year, the study found. That’s almost double the GDP-adjusted damages faced by China and almost quadruple that of Canada. The only country in the study identified as facing a bigger share of property damages was the Philippines, which suffers yearly losses of around 3 percent of GDP.

Jerome Haegeli, the chief economist of Swiss Re, says the United States is unusually exposed to many different types of weather disasters — from severe thunderstorms to floods and hurricanes. But the country’s wealth also means it has a lot to lose when hurricanes or floods hit home: “The U.S. has the highest economic losses from weather events in the world in absolute terms,” he said.

Last year, the United States experienced 28 billion-dollar disasters, according to the National Oceanic and Atmospheric Administration, including the wildfire in Lahaina and severe hailstorms in Texas. All 28 disasters combined cost an estimated $93 billion.

Jesse Keenan, a professor of real estate and urban planning at Tulane University, said the result shows how disasters may soon cut into economic growth. “If we think that in the future we’ll have relatively modest forms of growth — 2, maybe 3 percent growth in GDP — and here we’re at 0.4 percent of GDP losses with just these storms and just this one sector, that really starts to cut into our growth,” he said. “It could really become something that reduces our economic prowess.”

Keenan noted that the Swiss Re report didn’t capture the full scope of climate-related losses, since it only included property damage. “Particularly in floods, we’ve had auto damages that are close to parity with property losses,” Keenan said.

Americans face another challenge when it comes to severe weather events: getting compensated for their losses. Only about half of the property damages from recent severe weather events in the United States were insured, the study said, and at the same time, large insurers have started halting policies on properties that are in floodor wildfire-prone areas. Some insurers have stopped offering home insurance policies in California, which has seen numerous large wildfires in the past few years. Others no longer offer coverage for areas that are within a certain distance of the coastline.

The insurance policies that remain have become more expensive. During congressional testimony last week, Jerome H. Powell, the chairman of the Federal Reserve, pointed to rising automobile and property bills as driving up overall prices. “That’s been a significant source of inflation over the last few years,” he said.

The average home insurance policy increased 21 percent between May 2022 and May 2023, according to the insurance analysis group Policygenius. Some homeowners have begun forgoing insurance altogether — adding to Americans’ overall disaster risk.

Part of the problem is that there aren’t national requirements to prevent building in disaster-prone areas. At the same time, high housing prices and limited stock push Americans to live wherever they can find affordable options. That means funds for infrastructure and housing are being poured into areas that may later be destroyed by wildfire, floods or hurricanes.

“We’re setting ourselves up for a fiscal disaster,” Keenan said. “It’s going to be a burden on public debt no matter what way you look at it.”

The report also highlights how adapting to climate change now will prevent damages later on. A dollar invested to align construction with new building codes to better withstand floods or hurricanes can save between $6 and $10 down the road, the study shows. But only 31% of jurisdictions in the United States have adopted updated building codes, Haegeli said — leaving many more areas vulnerable.

Haegeli said that while the United States and the Philippines came in on top, every country is being impacted. “There is no country — whether you are in Switzerland, whether you are in the U.S., whether you are in China — that is not exposed,” he said.