Increased losses due from climate change
Reports published in the last week have again warned the insurance industry to expect increased financial losses as weather-related catastrophes worsen as a result of climate change.
The latest report by the Intergovernmental Panel on Climate Change (IPCC) was released on 6 April and warned that billions of people, mainly in developing countries, could face shortages of food and water and increased risk of flooding.
Dr Robert Muir-Wood, chief research officer of RMS, is a lead author on the chapter on 'Industry, Settlement, and Society' for the IPCC report and said that with weather-related hazards clearly increasing in some regions of the world, financial losses from extreme weather catastrophes are also rising.
“The increases in extreme weather have placed our current systems for risk management, such as insurance, under stress. Future predicted increases in extreme weather events will require accelerating investments in adaptation strategies for human populations,” he warned.
The report’s analysis of insurance industry and economic loss data has shown that financial losses from weather-related catastrophes have increased by an average of 2 percent per year since the 1970s, even when changes in wealth, inflation and population growth are taken into account. The research was used by Sir Nicholas Stern in his review of the economics of climate change to calculate that the costs of extreme weather alone could reach 0.5-1 percent of world GDP by the middle of the century, and that the costs will keep rising as the world continues to warm.
Dr Muir-Wood added: “Wealthy developed countries have much greater means than poorer countries to deal with the increased costs of weather-related catastrophes and to adapt to the changing climate hazards. However, even the wealthiest countries will find it a challenge to adapt quickly and effectively to the increased hazards posed by climate change.
He continued: We can expect more situations like the flooding of New Orleans, where current infrastructure is inadequate to protect populations. In areas of rising risk, governments will be placed under increasing pressure to provide state-backed alternatives to private insurance, as has already been happening in Florida.”
Separately, a report by Lloyd’s said the insurance industry should start planning and modelling now for a higher level of losses across the world by the middle of this century as both the severity and frequency of weather events continue to increase.
The report entitled ‘Rapid Climate Change’ said that sea levels will rise faster this century than in the last, and the prospect of a rapid rise in sea level within our lifetime is increasing.
It said evidence is building to suggest that large portions of ice sheets will melt this century, speeding sea level rises further and increasing uncertainty for coastal communities about the speed and impact of climate change.
Lloyd’s warned that while floods currently account for half of all deaths caused by natural disasters, the frequency and magnitude of flooding is set to increase.
The report stated: “Droughts result from long-lasting, large-scale climate features and are linked to the El Nino-Southern Oscillation and also the North Atlantic Oscillation, both of which are in turn linked to man-made climate change. Compared to the observed historical record, drought patterns are changing in a way that is consistent with a warming world.”
It concluded: “Global warming is not only changing the average climate; but it is also making it more erratic which should be of particular concern to the insurance industry.”