Expect the unexpected the Expect Australia and New Zealand Expect the Scientific facts Scientific and economic impacts disasters of natural unexpected Scientific facts and economic impacts of natural disasters Munich Re Munich Are you prepared? Intense Convective storms/ precipitation Hailstorms Cyclones Storm surges/ Floods Earthquakes East Coast Lows Bushfires Volcanoes Blindtext The magnitude and frequency of hazards are rising while metropolitan areas and their value concentrations are also growing. Will your business withstand the ever-increasing perils? Rely on the financial strength of Munich Re and our exper- tise as a strong partner to safely withstand large nat cat events – even the unexpected ones. Munich Re Expect the unexpected 1 Contents 3 Foreword “We are committed to the Australian and New Zealand markets” 4 Facts and figures 6 Earthquakes Expect a Big One 11 Resilience Together for a resilient Australia 12 Climate Australia and New Climate change on the rocks – did you know … Zealand have been 14 Cyclones hit hard by natural Turbulence on the Gold Coast 20 Risk catastrophes in recent What is risk? years: floods, cyclones, 24 Climate hailstorms, bushfires Natural climate variability 28 Floods and earthquakes. The Never underestimate troubled water consequences of these 32 NATHAN severe nat cat events Check into NATHAN Risk Suite 34 Hailstorms are among the worst in Icy cricket balls from above the world, and the risks 38 Risk modelling associated with them Dreaming of the perfect model 40 Bushfires are changing fast. Australia on fire 44 Volcanoes Sleeping giants underneath 48 Economy How much can Australia’s economy withstand? 51 Contacts 2 Munich Re Expect the unexpected Foreword Mr. Hawkins, Mr. Eder, how would “ We are committed you sum up the natural catastrophe situation in Australia and New Zea- to the Australian land at present? and New Zealand Scott Hawkins: Over the past ten years, we have observed an increased markets” frequency of medium and large nat- ural catastrophe events. This has impacted many regions of Australia and New Zealand and has included various perils: earthquakes, cyclones, Heinrich Eder, floods, bushfires and hailstorms. Managing Director, and Heinrich Eder: As much as these per- Scott Hawkins, General ils – unfortunately – seem to be part of life, events in recent years have Manager Non-Life, of demonstrated that insurers need to Heinrich Eder Munich Re in Australasia, focus more on the “unexpected”. All we know is that perils might now hit comment on the current us more often, harder or in unex- Hawkins: Of course, we also demon- situation, trends and pected places. Insurers need to be strate our strong commitment in financially prepared for such unfore- terms of the capacity that we deploy developments on the seen large natural disasters. With in the market. Our local presence (re)insurance markets this publication, we want to highlight and empowerment enable us to bring such scenarios and help our clients the Munich Re (Group) balance sheet in Australia and New through financially stormy days and to our clients in the region. Zealand. rough waters to come. What does Munich Re contribute to What developments do you see? higher resilience? Hawkins: El Niño and La Niña peri- Eder: When it comes to local engage- ods will pose many challenges in the ment, we certainly walk the talk. We natural catastrophe environment. We are highly driven to helping boost may witness more powerful cyclones, resilience to natural catastrophe increased drought and more bush- events. As a founding member of the fires. But regardless of climate vari- Australian Business Roundtable, we ability, constant vigilance is required actively support the development of when assessing your exposure, in a more sustainable, coordinated order to be more resilient to large national approach to making our natural catastrophes. communities stronger and Austra lians safer – so that we are able to over- How does Munich Re help clients come the expected and even the and the public to be more resilient to unexpected. natural disasters? [email protected] Eder: We are very committed to the https://au.linkedin.com/in/ Australian and New Zealand mar- heinricheder/de kets. We have operated here for the last sixty years, offer valuable local [email protected] and global experience and financial https://au.linkedin.com/in/ strength, and have built up unique scotthawkins1 Scott Hawkins expertise on all kinds of nat ural haz- ards. But there is more to it than that: we are always in close contact with our clients, pay claims swiftly and offer reliable support in difficult times. We stand behind our clients all the way, and this is something they can always expect from us. Munich Re Expect the unexpected 3 Facts and figures 2015 A$ 6.3bn Natural disasters currently cost the Australian economy A$ 6.3bn per year. // Facts and This amount is expected to increase to about A$ 23bn in 2050. figures Source: Australian Business Roundtable 2050 A$ 23bn 80% of the insured people affected by the Black Saturday Victorian Fires in 2009 were underinsured. The Sydney hailstorm of 1999 produced hailstones the Exclusive online content 7 cm size of cricket More facts from our balls. Munich Re NatCatSERVICE: www.munichre.com/ausnz/ natcatservice 4 Munich Re Expect the unexpected Facts and figures Losses (CPI-adjusted in A$ m) Losses (CPI-adjusted in A$ m) The 5 most significant loss events The 5 most significant loss events in Australia 1980–2015 in New Zealand 1980–2015 3,800 Overall losses 28,000 Overall losses 2,800 Insured losses 19,500 Insured losses Hailstorm Earthquake 14.4.1999 22.2.2011 New South Wales South Island 3,500 13,000 2,000 10,200 Floods, flash floods Earthquake 10−14.1.2011 4.9.2010 Queensland Canterbury 3,100 3,200 1,800 2,400 Earthquake Earthquake 28.12.1989 13.6.2011 New South Wales South Island 3,000 1,000 1,600 910 Cyclone Yasi Earthquake 2−7.2.2011 2.3.1987 Queensland North Island 1,900 335 1,400 240 Floods Flood 11−18.2.2008 27−29.1.1984 Queensland Invercargill Source: Munich Re NatCatSERVICE Raising the Warragamba Dam wall by 23 metres would reduce annualised average flood costs by around three quarters. Source: Australian Business Roundtable Munich Re Expect the unexpected 5 Earthquakes Expect a Big One Alexander Allmann Munich Re expert on earthquakes 6 Munich Re Expect the unexpected Earthquakes Earthquakes in Australia is not known as an Our models show that regions of ele- earthquake hotspot – but neither vated seismicity are in close proxim- Australia are infrequent was Christchurch in New Zealand. ity to most of the major conurbations and mostly moderate in As it turned out, in Christchurch in (Perth, Adelaide, Melbourne and 2010/2011 an unexpected series of Sydney). For each individual area, the size. At first glance, this severe earthquakes with a magni- seismicity is too low for a robust appears to be a much tude of up to 7.1 surprised even the statistical analysis of the probability experts and destroyed large parts of a severe event right underneath a more comfortable of the city – it was one of the most city or the maximum size of such an situation than in New expensive insured natural catas- event. What we do know is that each trophes in history. Since Australia is of the cities has the potential to be Zealand, Japan or the not located at the margins of tectonic hit by earthquakes bigger than a United States. However, plates, where 90% of the world’s magnitude of 6. Earthquakes like seismicity occurs, many Australians those in Christchurch should not on closer examination are not aware that this is a peril we come as a surprise and are very real- the picture looks need to worry about – but maybe we istic scenarios. should. different: earthquakes Many buildings will not survive in Australia could cause The Australian continent experiences strong ground motions small earthquakes all the time insured losses in the because the Indo-Australian tectonic A few small to moderate earthquake same order of plate is being pushed north and thus events have provided data that have collides with other plates. This leads helped us to constrain our modelling magnitude as in the to a build-up of mainly compressive of the potential ground motions that highest-exposed stresses that are released in shallow can be expected in Australia. Overall, earthquakes. Although earthquakes the data set is still very limited and regions worldwide. can occur anywhere in Australia, this there are barely any data for bigger seismicity is spatially heterogeneous; events. The uncertainty associated some regions have significantly with these ground motion estimates increased seismic activity. Statistical is high. Fortunately, the soil conditions analyses on recorded earthquakes in cities like Sydney are much better show that events with a magnitude than in Christchurch. Although ground similar to or higher than that in New- motion amplification is expected in castle in 1989 (magnitude 5.6) can some regions that have soft soils, no be expected every two years, with a widespread liquefaction is expected. magnitude of 6.0 or more every five years on average. Fortunately, most Given the moderate earthquake haz- of them happen in unpopulated or ard in Australia, buildings are not sparsely populated regions. constructed to resist very strong ground motions. The moderate New- castle event in 1989 provided a good #Earthquakes in Aus- illustration of the very poor behaviour tralia? It could happen of structures such as unreinforced close to every major city: masonry buildings. Should a severe low probability, high earthquake occur underneath one of consequences #seismic the major cities, the ground motions activity, #lessons will significantly exceed the design learned, #Christchurch ground motion in the building codes.