Rethinkingclimate

adaptationforglobalresilience

15April2025

AllianzResearch

AllianzResearch

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Content

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ExecutiveSummary

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Weighingthecostsofnon-adaptation

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Thegrowingfinancialburdenofclimatedisastersinhigh-incomenations

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Thedisproportionateburdenofclimatedisastersondevelopingeconomies

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Adaptationfinanceislaggingbehindmitigationfinance

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Strengtheningclimateadaptationforaresilientfuture

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15April2025

Executive

Summary

HazemKrichene

SeniorEconomist,Climate

hazem.krichene

@

GvancaKirvalidzeResearchAssistant

gvanca.kirvalidze

@

Reducingcarbonemissionswillnotbeenoughonitsown.AccordingtonewlyreleasedprojectionsfromtheNGFS,evenunderanet-zerotransitionscenario,

globalGDPisexpectedtoshrinkby8%comparedtoabaselinewithout

climatechange,aneconomictollmoreseverethanpreviouslyestimated.

Thelatestestimates(Phase5)showthatthenet-zeropathwaywouldleadto

anadditional6%GDPdeclinecomparedtoPhase4projections,resultingin

USD1.24trninextraglobaleconomiclossesby2050.InEurope,forexample,

underthemostambitiontransitionscenario,cumulativeflood-relateddamagescouldreducehouseholddisposableincomebyapproximatelyUSD107,000,

withdisproportionateeffectsacrosscountries.Developingeconomiesface

asignificantlyhighertollfromextremeweatherevents,bothinhumanand

economicterms.While71%ofreporteddisastersoccurredindeveloped

countries,91%offatalitieswereindevelopingnationsduetoweakinfrastructureandlimitedearly-warningsystems.LeastDevelopedCountries(LDCs)andSmallIslandDevelopingStates(SIDS)haveexperiencedseverefinancialdevastationduetoclimatechange,withsomedisasterswipingoutover100%ofGDP.Theselossesunderscorethegrowingrisksofclimateimpactsandhighlighttheurgentneedforadaptationmeasuresalongsidemitigationefforts.

Yet,adaptationfinanceremainsseverelyunderfunded.By2030,theannualdemandforadaptationfundingisprojectedtoreachUSD387bn.Butonly

USD63.5bnwasmobilizedasof2022,leavingamassiveUSD323.5bnshortfall.Thisfundinggapputsmillionsatgreaterriskofclimatedisasters.Furthermore,thelimitedadaptationfinanceavailablewasdistributedunevenly,revealingdeepregionaldisparitiesinaccesstocriticalresources.

Theinsurancegapisalsoacriticalchallengeinclimateadaptation,with

developingeconomiesfacingparticularlysevereunderinsurance.CountrieslikeChinaandIndiahavealarminglyhighinsurancegapsof94%and93%,

respectively,leavingnearlyalldisaster-relatedeconomiclossesuninsured.Thisiscloselylinkedtotheirlowinsurancepenetrationrates(China:1.2%;India:

0.6%).Butwhiledevelopedeconomieshavemuchlowergaps,thankstowell-establishedinsurancemarketsandfinancialsafeguards,coveragefluctuatesdependingondisasterseverityandpreparedness.

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Inthefaceofescalatingclimaterisks,thepublicsectorholdsacentralrole

inadvancingadaptationefforts,notonlyasaregulatorandfinancier,but

alsoasacatalystforprivatesectorengagement.Byguidinginfrastructure

development,shapingurbanplanninganddeployingtargetedfiscalpolicies,

governmentscanreduceclimatevulnerabilityandfosterlong-termresilience.

Acriticalstrategyinthiseffortistheuseofblendedfinance,whichstrategicallycombinesconcessionalpublicfundingwithprivatecapitaltochannelinvestmentintoadaptationprojectsthatmaybeperceivedastooriskyorunprofitable.Thisapproachenablespublicresourcestode-riskinvestments,makingthemmore

attractivetoinstitutionalinvestorsandunlockingessentialfinancingforclimateresilienceinitiatives.

Expandinginsurancecoverageisessentialforenhancingclimateresilience

acrossbothdevelopedanddevelopingeconomies,butstrategiesmust

beadaptedtolocalconditions.Indevelopedcountries,nationalinsurance

schemesarekeytomanagingclimate-relatedrisksbypoolingexposuresacrossvarioushazardsandassettypes,thusofferingbroadfinancialprotectionand

promotinglong-termstability.Government-backedinsurancepoolsinparticularhelpmaintainaccesstocoverageinareaswhereprivateinsurersfacedifficultiesinofferingaffordablepoliciesfornaturalcatastrophes.Forinstance,theUShasestablishedprominentpublicinsurancemechanismssuchasFlorida’sCitizens

PropertyInsuranceCorporationandtheFloridaHurricaneCatastropheFundforwindstormrisks,aswellastheCaliforniaEarthquakeAuthorityforseismicevents.Theseprogramsillustratethepotentialofpubliclysupportedinsurancetoaddresschallengesaroundaffordability,riskconcentrationandfinancial

sustainabilityinthefaceofgrowingclimatethreats.

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Weighingthecostsofnon-adaptation

Climatemitigation–i.e.cuttingcarbonemissions–willnotbeenoughonitsown.Humanactivitiessuchasfossil-fuelcombustion,deforestationandlarge-

scaleindustrializationhavesignificantlyincreased

theconcentrationofgreenhousegasesinthe

atmosphere,disruptingtheplanet’sdelicateclimatebalance.Historicalclimatedataindicatesthatglobaltemperatureshavealreadyrisenbyapproximately

1.2°Ccomparedtothe1950–1980average(Figure

1).Thiswarmingtrendhasacceleratedinrecent

decades,withthepastfewyearsconsistentlyrankingamongthehottestonrecord.Projectionsfromthe

IntergovernmentalPanelonClimateChange(IPCC)suggestthat,dependingonmitigationefforts,globaltemperaturescouldrisebetween2°Cand4.5°Cbytheendofthecentury.Evenunderthehighlyambitious

1.5°Cwarminglimitby2100,thecumulativeeconomiclossesfromclimatechangeareestimatedtoreach

astaggeringUSD1,062trnbetween2025and21001.

However,thispalesincomparisontothecatastrophic

financialtollprojectedunderabusiness-as-usual

trajectory,whichcouldresultinUSD2,328trninclimate-

inducedlossesifglobaltemperaturesriseby4.5°C.Thesefigureshighlightastarkreality:eventhemostoptimistic

transitiontowardsagreeneconomy,implementedin

anorderlyandgloballycoordinatedmanner,willnot

besufficienttopreventsevereeconomicrepercussions

withoutparallelinvestmentsinadaptationstrategiesto

protectpeople,citiesandeconomiesfromclimateimpacts.Theserangefrombuildingfloodbarriersandheat-

resistantinfrastructuretoimprovingwatermanagementanddisasterresponse.Theurgencyforgovernments,

businessesandfinancialinstitutionstoscaleupboth

mitigationandadaptationeffortscannotbeoverstated.Frominfrastructureresiliencetoecosystemrestoration,climateadaptationmustbecomeanintegralpillarof

economicandpolicyplanningtoavertirreversiblesocialandeconomicdisruptions.

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TheCostofInaction-CPI

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Figure1:Risingglobalsurfacetemperaturecomparedtoaveragetemperature1950-1979

Temperatureanomaly(°C)

1.41.2 10.80.60.40.2

0

198019851990199520002005201020152020

-0.2

Sources:Copernicus,AllianzResearch

Initsrecentconceptualnoteonadaptation,the

NetworkforGreeningtheFinancialSystem(NGFS)

emphasizestheurgentneedtoprioritizeinvestmentsinclimateadaptation.Investmentsinclimate

resiliencenotonlypreventfutureeconomiclossesbut

alsogeneratesubstantialsocio-economicbenefits,

strengtheningtheadaptivecapacityofvulnerable

communitiesandadvancingsustainabledevelopment.InearlyNovember2024,theNGFSreleasedupdated

projections(phase5)onclimate-relateddamages,

incorporatinganewlydevelopedphysicaldamage

function.Thiscutting-edgemethodologyenhancestheaccuracyofassessingtheexternalcostsofphysical

climaterisksbyintegratingregionalvariations,climatefluctuationsandthelong-termpersistenceofdamages2.Thefindingspaintasoberingpicture:evenundera

net-zerotransitionscenario,globalGDPisexpectedtocontractbyapproximately8%comparedtoabaselinescenariowithoutclimatechange,aneconomictoll

moreseverethanpreviouslyestimated.Forcontext,thepreviousNGFSframework(2023,phase4)projected

aGDPdeclineofabout5%underthecurrentpolicy

trajectory.Additionally,underthephase5net-zero

pathway,GDPdeclinesbyanadditional6%comparedtothephase4NGFSnetzeroprojections,translatingintoanestimatedUSD1.24trninadditionalglobaleconomiclossesby2050(Figure2).Thesefiguresunderscore

acriticalpolicychallenge.Eventhemostambitious

mitigationefforts,suchasthosetargetingnet-zero

emissions,areinsufficienttofullyaverttheeconomic

consequencesofclimatechange.Thepotentialphysicaldamageshighlightedintheseprojectionsstressthe

needforparalleladaptationmeasures.Byinvesting

inadaptivestrategies,suchasresilientinfrastructure,

enhanceddisasterpreparednessandimprovedland-useplanning,policymakerscansignificantlyreducethese

economicandsocialvulnerabilities.

2

Theeconomiccommitmentofclimatechange|Nature

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Figure2:GDPcontractionundernet-zeroscenario:AcomparativeanalysisofNGFSVersions4and5

2020202520302035204020452050

0

-1

-2

-3

-4

-5

-6

-7

-8

-9

NetZerov4NetZerov5

Sources:NGFS,AllianzResearch

Naturaldisasterscausesignificantdamageto

publicandprivateinfrastructure,placingaheavy

financialburdenongovernmentbalancesheetsas

thepublicsectoristypicallyresponsibleforcoveringmost,ifnotall,ofthecostsofreconstructionand

recovery.However,thefiscalimpactextendsfarbeyondimmediateexpenditures(Figure3).Thedisruption

ofcriticalinfrastructure,suchasroads,energygrids

andwatersystems,createsrippleeffectsthroughout

theeconomy,affectingbusinesses,householdsand

overallproductivity.Firmsmayexperiencesupply-

chaindisruptions,lostrevenuesandincreased

operationalcosts,whilehouseholdsfaceincomelosses,

displacementandrisinglivingexpenses.Thesecascadingeffectssloweconomicgrowth,increasesocialwelfare

expendituresandreducetaxrevenues,furtherstraining

publicfinances.Inextremecases,governmentsmaybe

forcedtoactasthe“insureroflastresort“,shouldering

privatesectorlosseswheninsurancemarketsfailtoprovideadequatecoverage.Additionally,repeatedinfrastructuredamagecandeterinvestment,increaseborrowingcosts

andweakenlong-termfiscalsustainability.Thewidespreadeconomicrepercussionsofnaturaldisastershighlightthe

potentiallyimmensecostoffailingtoinvestinadaptation.

AllianzResearch

Figure3:Transmissionofclimateshocksintheabsenceofadaptation

Sources:Rangeretal.(2021),AllianzResearch

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Thegrowingfinancialburdenofclimatedisastersinhigh-incomenations

ThecostofrisingwatersinEurope

Theescalatingeconomicdamagesprojectedunder

eventhemostambitiousclimatetransitionpathwaysarenolongerhypothetical;theyarealready

manifestinginrealtimethroughincreasinglysevere

andcostlynaturaldisasters.Urbanexpansionis

makingtheseimpactsevenworse.Ascitiessprawlintofloodplains,coastalareasandwildfire-proneregions,

morepeopleandinfrastructureareputdirectlyinharm’sway.Floodingisoneofthemoredevastatingevents

anditsfrequencyhasbeenincreasingfrom1990to

2023,withanotableupwardtrendoverthedecades

(Figure4).Thenumberoffloodeventsremainedbelow100peryearintheearly1990sbutgraduallyincreased,surpassing150annualeventsbytheearly2000s.

Thepeakyears,particularlybetween2003and2007,

recordedover200flooddisasters.Althoughfluctuationsarepresent,theoveralltrajectorysuggestsarisingtrendinfloodoccurrences,particularlyinthelastdecade.

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Figure4:Numberoffloodeventsworldwidefortheperiod1990–2023250

NumberofFloodDisasters

200

150

100

50

0

199019931996199920022005200820112014201720202023

Sources:NOAA,AllianzResearch

facingcumulativelossesofaroundUSD24,000,Italian

householdsUSD17,000,andSpanishhouseholds

USD9,000.Inahigh-emissionsscenario(RCP8.5),where

climatemitigationeffortsareinsufficient,thefinancial

burdenonhouseholdsgrowssubstantially.Frenchand

Germanhouseholdsemergeasthemostaffected,with

cumulativeincomelossessignificantlysurpassingthose

undertheRCP2.6scenario.Frenchhouseholdswould

experiencea47.8%increaseinlossescomparedtoRCP2.6,whileGermanhouseholdswouldseetheirflood-related

incomelossesdouble(+100.7%).Thesefindingsunderscoretheurgentneedforproactiveadaptationstrategiesto

mitigateescalatingeconomicrisksinthefaceofworseningfloodevents.

Withouttargetedadaptationmeasures,economic

lossesfromriverfloodingareexpectedtoescalate

asboththeintensityandfrequencyoffloodevents

increaseacrossallclimatechangescenarios.Even

underascenariowithstrongmitigationefforts,such

asRCP2.6,whichalignswiththeParisAgreement’s

goaloflimitingtheglobaltemperatureriseto+2°Cby

2050,shiftingprecipitationpatternswillheightenfloodrisks.Figure5illustratestheprojectedeconomicimpactonhouseholdincomeduetoriverfloodingbetween

2025and2035.UndertheRCP2.6scenario,cumulativehouseholddisposableincomelossesfromflood-relateddamages(measuredinpurchasingpowerstandards,

PPS)areprojectedtoreachapproximatelyUSD107,000.National-levelimpactswillvary,withFrenchhouseholds

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Figure5:Top10cumulativehouseholdincomelossinEuropeforthedecade2025–2035acrossdifferentemissionsscenarios(EUR)

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

FranceItalyGermanySpainSwedenPolandFinlandGreeceRomania

RCP2.6RCP6.0RCP8.5

Sources:ISIMIP2b,AllianzResearch

Box1:Howfloodingisreshapingrealestateinvestmentrisks

Realestatemarketsareshapedbyadelicatebalanceoflocation,desirabilityandrisk.Yet,asclimatechange

intensifies,oneriskisbecomingincreasinglydifficulttoignore:flooding.Thefinancialimpactoffloodsonpropertyvaluesextendsbeyondimmediatephysicaldamage,influencingmarketconfidence,insurancecostsandlong-terminvestmentpatterns.

Thefinancialimpactoffloodingonrealestateisdeeplyconnectedtothecharacteristicsanddistributionof

thehousingstockinflood-proneareas.Asclimaterisksintensify,itisincreasinglycrucialtointegratefloodrisk

considerationsintourbanplanning,realestatevaluationandpolicyframeworks.Severalmechanismscanhelpmitigatefinanciallosses,includingzoningregulationsthatrestrictconstructioninhigh-riskareas,mandatoryfloodinsurance

requirementsandadjustmentstopropertyvaluationmodelsthatbetterreflectfloodexposure.Acomprehensivemeta-analysisbyBeltránetal.(2018),synthesizingdatafrom37studiesand364priceestimates,foundthathomessituatedwithina100-yearfloodplainexperienceanaveragepricedeclineof-4.6%.Thisdiscountbecomesevenmoresevere,

risingto-6.9%,immediatelyfollowingasignificantfloodevent.

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Multiplefactorscontributetothesedeclinesinpropertyvalues.First,thephysicaldestructioncausedbyfloodingoftenleadstoexpensiverepairs,makingaffectedpropertieslessdesirabletobuyers.Second,homeslocatedinfloodzones

typicallyfacerisinginsurancepremiumsasinsurersreassessrisks,increasingthecostofhomeownershipandfurther

depressingdemand.Third,thepsychologicalimpactofwitnessingflooddevastationinfluencesmarketbehaviour,as

potentialbuyersbecomemorerisk-averseandreluctanttoinvestinflood-proneproperties.Evenhomesthatnarrowly

escapedamagecansufferpricedeclinesduetoperceivedvulnerability,asdemonstratedbyastudybyReichetal.

(2020),whichexaminedriverfloodinginZurich.Thisstudyrevealedthatdespitemandatoryinsurancepoliciescoveringmostflood-relateddamages,propertiesindesignatedfloodhazardzonessoldforsignificantlylowerpricesthanthoseinsaferareas.Interestingly,homesclassifiedaslow-riskappreciatedinvaluewhendetailedfloodriskinformationbecamepubliclyavailable,indicatingthatgreatertransparencyinhazardassessmentsshapesmarketconfidenceandvaluation.

Thelong-termimpactoffloodriskonpropertymarketsvariesacrossregionsandevents.Somemarketsrecoverovertimeasmemoriesofdisastersfadeandlocalfloodmanagementimproves.IntheUS,forexample,researchfoundthatthenegativepriceeffectsassociatedwithHurricaneFloydandthe1994Georgiafloodslargelydisappearedwithinsixtonineyears(BinandLandry,2013;Atreyaetal.,2013).However,inareaswhereclimaterisksareprojectedtoworsen,flood-relatedpricereductionsmaypersistindefinitely.

Beyondpropertysales,floodriskalsoinfluencesrentalmarkets.AstudybyHirschandHahn(2017)ontheGerman

housingmarketshowedthathomeswithindesignatedfloodzoneswerevaluedatanaverageofEUR299lesspersquaremetercomparedtothoseinsaferlocations.Rentalpricesinhigh-riskfloodzoneswerealso1.88%lower,eventhough

tenantsdonotbearthefinancialresponsibilityforflooddamage.Thistrendsuggeststhatrentersconsiderindirectriskssuchasuninsuredhouseholdlossesandtheinconvenienceofflooddisruptionswhenchoosingwheretolive.Anotherkeyfindingwasthatproximitytorivershasanuancedeffectonrealestateprices.Whilepropertieswithinonekilometreofariverwerelargelyunaffected,thosewithin500meterssawdeclinesofupto-10%,reflectingheightenedconcernsoverfloodexposure.

CitiesintheUSareburning

ThedevastatingwildfiresthatstruckLosAngelesatthestartof2025starklyillustratedtheuniqueand

alarmingnatureofurbanfirestorms,whichdiffer

significantlyfromtraditionalwildlandfires.Inurbansettings,structuresthemselvesactasfuel,allowing

flamestorapidlyconsumeneighborhoodsasonehomeignitesanother.IntheLosAngelesarea,tightlypackedresidencessituatedonsteepterrain,combinedwith

strongwinds,createdtheperfectconditionsforthefirestospreadwithferociousintensity.Addingtothiscrisis

isthephenomenonknownas“hydroclimatewhiplash“characterizedbyabruptshiftsbetweenextremewet

anddryperiods,apatternexpectedtobecomemorefrequentasglobaltemperaturesrise.3Heavyrainfallduring2023andearly2024hadfueledabundant

vegetationgrowthintheregion,butthenear-total

absenceofprecipitation,lessthanonemillimetre,since

July2024turnedthatgreengrowthintoavastsupplyof

tinder.Theseconditions,exacerbatedbyclimatechange,setthestageforoneofthemostdestructivefireeventsinLos

AngelesandU.S.history.

TheeconomicfalloutoftheJanuary2025wildfires

underscoresthescaleofthedisaster.Preliminary

estimates?indicatethatpropertyandcapitallossesrange

fromUSD95bntoUSD164bn,withinsuredlossesprojectedatUSD75bn.Beyondthedirectdamages,thefireswould

significantlyimpactthelocaleconomy.Thecounty’sGRP

(grossregionalproduct)isexpectedtocontractby-0.48%

in2025,representingalossofapproximatelyUSD4.6bn.

Furthermore,thelivelihoodsoflocalbusinessesandworkersinaffectedareashavebeenseverelydisrupted,withwagelossesamountingtoUSD297mn.Thesefigureshighlighttheprofoundeconomic,socialandenvironmentalconsequences

3

HydroclimatevolatilityonawarmingEarth|NatureReviewsEarth&Environment

?

EconomicImpactoftheLosAngelesWildfires|UCLAAndersonSchoolofManagement

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ofurbanfirestormsintheabsenceofproperadaptationstrategy.WildfireactivityalongtheUSWestCoasthasbeenontheriseoverthepastdecade,particularlyin

California,OregonandWashington.Figure6highlightsthedramaticincreaseintheaverageshareofburnedareasacrossselectedUSstatesduringtwoperiods:

20012010and20112022.Thistrendreflectsthe

escalatingintensityofclimate-relatedfactorssuch

asprolongeddroughts,heatwavesandhydroclimate

whiplash,whichareexpectedtopersistandamplifythefrequencyandseverityofwildfiresinthefuture.

Figure6:TheaverageshareofburnedareasinthetenmostaffectedUSstates:20012010vs.20112022

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

av.2001-2010av.2011-2022

Sources:Copernicus,AllianzResearch

Underanon-adaptationassumption,futurewildfire

projectionshighlightthesevereeconomicrisksposedtoCalifornia,evenwithambitiousclimatemitigationefforts.UsingtheSSP126scenario,whichalignswith

a+2°Cwarmingpathwayby2050,CaliforniasGross

RegionalProduct(GRP)isprojectedtoexperiencean

averageyearlydeclineof-0.8%.Thisfigurereflects

unavoidableeconomicdamagesevenwithrobust

mitigation.Toestimatetheeconomiccostofnon-

adaptation,weintegrateaUSwildfiredamagefunction(Figure7)withprojectionsofpopulation-weighted

burnedareasundertwoscenarios:SSP126(+2°C)

andSSP370(+3°C).Bothscenariosindicatesignificant

economicharm,butthemagnitudevariessharply.UndertheSSP126scenario,CaliforniasGRPremainsrelativelyclosetobaselinelevels(absenceofwildfiredamages)

until2040,afterwhichlossesaccelerate.Between

2025and2050,thecumulativeGRPlossisestimatedtoreachUSD7trn.Instarkcontrast,theSSP370scenario

(+3°Cwarming)triggersmuchmoresevereandearliereconomicimpacts.GRPgrowthwouldbegincontractingsignificantlyby2030,culminatinginunsustainable

economicdamagesby2050.ThecumulativeGRPlossunderthishigh-warmingscenariocouldtotalUSD26trnforthesameperiod.Thesefindingsunderscorethe

urgentneedforadaptationmeasures,evenunderthebest-caseSSP126mitigationpathway.Withoutrobustadaptationstrategies,includingimprovedland-use

planning,fire-resistantinfrastructureandenhanced

wildfiremanagement,Californiawillremainhighly

vulnerabletoescalatingfire-driveneconomiclosses.ThestarkdivergencebetweentheSSP126andSSP370scenariosillustratesthecriticalimportanceoflimitingglobalwarmingto+2°Cwhileinvestingheavilyinlocaladaptationtosafeguardtheregionseconomicfuture.

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Figure7:California’sGRP(USDbn)underthreescenarios:baseline(green),SSP126(blue)andSSP370(yellow)

4800

4300

3800

3300

2800

2300

1800

202520302035204020452050

BaselineSSP126SSP370

Source:AllianzResearch

TheloomingthreatsofhurricanesintheUS

Onthetopoffires,tropicalcycloneshavebecomeanincreasinglycostlyanddestructiveforceintheUS,

withbotheconomicandclimatictrendspointingtoaworseningcrisis.AkeymetricinunderstandingcyclonebehavioristheAdjustedAccumulatedCycloneEnergy

(ACE)Index,whichmeasuresthecombinedstrength,

durationandfrequencyofstormsovertime.AsshowninFigure8a,theACEIndexhasexhibitedanotable+35%increaseinthe21stcentury,reflectingariseinhurricaneactivity.However,inthemostrecentdecade,therehasbeena-9%declineintheadjustedACEIndex,driven

largelybyareductioninthenumberofmajorhurricanes(Categories3–5,Figure8b).Despitethisrecentdeclineinthemostintensestorms,theeconomicdamagescausedbytropicalcycloneshavesurgeddramatically.Figure

8ahighlightsthepersistentincreaseinfinanciallosses,emphasizinghowrisingcycloneactivityandsocio-

economicfactorshavejointlyamplifieddisastercosts.The2010–2019periodrecordedthehighesteconomic

losses,reachingapproximatelyUSD731bn,largelyduetothedevastatingimpactsofHurricanesHarvey,IrmaandMaria.Evenmoreconcerning,thecurrentdecade,despitebeingonlyafewyearsin,hasalreadyincurredUSD460bnindamages,anamountthatdoublesthetotallossesrecordedbetween

1980and1999,whichamountedtoUSD225bn.ThisdisparitybetweenadecliningACEIndexinthemostrecentdecade

andescalatingeconomicdamageshighlightsanimportantshift:evenwhenmajorhurricanesbecomeslightlyless

frequent,risingexposureandvulnerabilityincoastalregionssignificantlyamplifyfinanciallosses.Morepeopleandcriticalinfrastructurearenowconcentratedinhigh-riskareas,

makingevenlower-categoryhurricanescapableofinflictingsevereeconomicconsequences.Thisunderscoresthegrowingimportanceofadaptationandresilience-buildingmeasurestominimizefinanciallosses,regardlessoffluctuationsin

cycloneintensity.

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Figure8:Historicaltrendsinhurricane-relateddamagesintheUSsince1980:a)illustratesthetrajectoryofeconomiclossesalongsidetheAdjustedAccumulatedCycloneEnergy(ACE)Index;b)presentstheevolutionofhurricaneoccurrencesbycategory

900

800

Economiccosts(US$Bln,CPI-Adjusted)

700

600

500

400

300

200

100

0

a

1980-19891990-19992000-20092010-2019>2020

200

180

160

ACEIndex

140

120

100

80

60

SevereStormsTropicalCyclonesAdjustedACEIndex

20

18

16

NumberofStrikes

14

12

10

8

6

4

2

0

b

Total(Categories1-5)Major(Categories3-5)

1980-19891990-19992000-20092010-2019>2020

Sources:NOAA,NHC,EPA,AllianzResearch

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Thecostofinactiononhurricaneadaptationinthe

USisprojectedtobesevere,witheconomicdamagesexpectedtorisesignificantlyunderallclimate

scenarios.AsshowninFigure9,theextentoffinancial

lossesvariesacrossstatesbutremainsconsistentlyhigh,especiallyunderhigh-emissionscenarios.InFlorida,forexample,economicdamagesareprojectedtoriseby

+12%evenunderthemostambitiousmitigationpathway(RCP2.6),butunderRCP8.5,whereemissionsremain

unchecked,theincreasecouldreach+38%.Similarly,inLouisianaandMississippi,theprojecteddamagesescalatesharplyunderlessrestrictiveclimatepolicies,indicatingthatvulnerab