The cost of extreme weather : an analysis of the physical climate risk in Hordaland

Abstract

Climate change is expected to have numerous societal impacts in the years to come through an increase in the intensity and frequency of extreme weather events. The climate impact is of socio-economic interest, as extreme weather events can impose high costs through their impact on physical capital. This thesis analyzes the costs of extreme weather events in Hordaland, as measured by insurance compensation related to building damage. We focus on daily aggregate insurance payouts related to natural damage incidents at a municipality level. We use a flexible regression model to estimate the relationship between insurance compensation and meteorological variables and apply the model to climate change scenarios for extreme weather. Our analysis is based on data from 1980 to 2019, provided by the Norwegian Natural Perils Pool and the Norwegian Meteorological Institute. Our findings indicate that the physical climate risk facing Hordaland is mainly related to an increase in precipitation. We find that there is significant heterogeneity between municipalities and that the physical climate risk is higher for municipalities that are prone to floods and landslides. Our estimates indicate that the yearly natural-damage cost in Bergen alone can increase by close to NOK 16 million by the year 2100. The socio-economic consequences of this cost increase are limited. We also find that the relationship between cost and weather intensity is highly nonlinear. Whereas most weather causes little to no damage, extreme weather events can cause considerable damage. The highest 1% of precipitation incidents cause 74,5% of the costs related to floods and landslides in Hordaland. Nonlinearity also applies to wind-related costs. The average cost for wind-gust speeds exceeding 35 m/s in Bergen is NOK 171 million.