The Global Picture: Debate Over Climate Change Continues to Storm

Experts agree that the world’s climate is changing, but the debate continues about the causes and consequences. Multiple interactive factors are involved. The oceans warm and cool, the sun goes through an 11-year cycle, high altitude winds and ocean currents circle the globe. Each component interacts with the others, affecting the entire system.

Changes can be abrupt. A volcanic explosion or a major meteor strike can spew immense amounts of dust and ash into the atmosphere, causing global temperatures to decrease by several degrees in a matter of months. Most theories concur that something like this caused the disappearance of the dinosaurs 65 million years ago.

Normally, however, climate change evolves over centuries, but weather patterns now seem to be altering much more rapidly. This phenomenon has sparked a “heated” debate. A recent BBC report stated: “Most mainstream scientists believe that human activity—notably emissions of greenhouse gases—has contributed to a significant increase in the average surface temperature of the planet.” They blame the increased burning of fossil fuels (oil and coal) for intensifying the trend.

Other experts aren’t so sure. Peter Kelly, vice-president of EQUECAT who heads the Boston office, said: “In any given year or season, there are natural variations; now the curve seems to have changed, but it isn’t simply global warming. The samples are just too small in size to be meaningful, and we don’t have a long enough record of events involving large global systems.”

Kelly points out that the deployment of more sophisticated instruments and techniques to measure and observe the weather—satellites, reliable ocean current and temperature monitors, computer modeling—increases our understanding of how it works, and makes people more aware of what’s going on. Who ever heard of El Niño before 1985?

Increasing awareness
“Science understands more about the global teleconnections that affect the climate than ever before,” Kelly said. “We’re beginning to see the pattern in large global oscillations, but you have to be able to go back 50 to 100 years to do so.” By concentrating on just the warming aspects of climate change, other significant factors may not receive the attention they deserve. “Take clouds for instance. If it gets warmer, there’s more evaporation, which makes more clouds. They act to cool the earth; this in turn affects the number and severity of hurricanes and tropical storms.”

Global meteorology attempts to explain what drives the weather, but there are still vast gaps in the knowledge. “Certain phenomena, such as cloud formation, oceanic heat transport and the mixing of the air, are still so poorly understood that certain assumptions have to be made about the way the atmosphere behaves,” according to the BBC report. The sun’s role is also significant, especially in trapping atmospheric gases, but how it works and to what extent it affects the earth’s climate is unclear. Conclusions based on unproven assumptions are suspect.

The climate debate has taken on a political aspect as well. Europeans see global warming as a greater threat than Americans do, and are more concerned about limiting fossil fuel emissions. U.S. experts, while they don’t necessarily disagree that temperatures are rising, see the scenario as too complex to ascribe to one overriding cause, and insist that the effects are less than claimed, part of a natural oscillation in temperatures, and will be mitigated over time.

Impact on insurers
P/C insurers cover both man-made risks—fires, thefts, torts, products liability, etc.—and “natural disasters,” which includes practically everything else. “[In 2000] the number of natural catastrophes reached a new absolute high, with more than 850 catastrophes recorded worldwide, one hundred more than in the previous record year of 1999 and two hundred more than the average for the 1990s,” according to Munich Re’s report on last year’s catastrophic events. Windstorms caused 73 percent of the losses, followed by floods, blizzards, ice storms, heavy snow and droughts.

Past loss experience becomes less reliable in such an environment. After delegates to the Intergovernmental Panel on Climate Change conference on global warming in The Hague in November failed to agree on a way to reduce greenhouse gas emissions, BBC environmental correspondent Alex Kirby summed up their mood: “The climate has always changed. But what is happening now is that it is changing very much faster than we think it would with natural climate variability, and our ability to cope with that change and the ability of other species is probably not going to be enough.”

Dr. Gerhard Berz, head of Munich Re’s Geoscience Research Group, warns: “Global warming must be curbed at all cost. It is to be feared that the risk situation will deteriorate in many regions of the earth and thus affect insurers too. At any rate, Munich Re reckons with a distinct increase in weather-related and climate-related natural catastrophes.” They already account for the “lion’s share of insured catastrophe losses.”

Swiss Re’s upcoming Sigma Report will show a large decrease in insured catastrophe losses in 2000. Only one, the floods that hit Japan’s Tokai region in October, cost more than $1 billion. So why worry? Insured losses last year were a relatively modest $11 billion, compared to 1999’s $31 billion, the second costliest year in history.

As Swiss Re points out, however: “The accumulation of storms and earthquakes striking highly populated areas in 1999 was purely random—as was their absence in the year 2000. It is assumed that the trend towards high losses will continue uninterrupted, particularly as many risk factors persist: higher population densities, higher concentrations of insured values, especially in endangered areas.”

“In spite of the overall loss balance being favorable in 2000, there is no justification for speaking of a change in the trend as far as loss and damage from natural catastrophes is concerned,” Munich Re stated. Losses were low in 1997, but shot up again in 1998-99.

CGNU’s Dr. Dlugolecki, until recently chairman of the United Nations Environment Program’s insurance industry initiative, predicts rising damages from increasingly violent weather events. He noted that a 10-percent increase in wind speed results in a 150-percent increase in damage, and that global economic losses have grown by 10 percent a year on average over the last 40 years, reaching $100 billion in 1999.

Effects on humans
Human activity produces greenhouse gases, population centers and habitation sites. Weather-related risks are therefore more concentrated in populated areas. These risks are passed to an insurer when a business or homeowner buys a policy. Munich Re notes: “On account of the growth in the world’s population, which in the highly exposed areas of the world and in particular in the major conurbations [metropolitan areas] is even increasing at an over-proportionate rate, and the rise in the concentration of property values, the losses generated by natural catastrophes must be expected to continue increasing in the future.”

Kelly concurred. “Anthropogenic effects raise loss figures as well. Higher population densities, more intensive farming, buildings in previously uninhabited areas such as seashores and floodplains all create higher risks, especially from floods.” More rain falls, the water runs off faster, local streams and rivers can’t contain it, and the resulting floods do more damage because businesses and houses are more numerous and have been located in more exposed areas of the floodplain. Recent examples: the floods in Mozambique last spring, the inundation of large parts of North Carolina by the rains of Hurricane Floyd, the storms that have repeatedly flooded parts of England and France this winter, and October’s floods in Japan.

If the scientists are right, previous models for catastrophe losses are inadequate. There’s no “regression to the mean” in the sense that underwriters can accurately apportion risks. As a result, some properties may become for all practical purposes uninsurable, and others will see rates rise precipitously.

Governments and the private sector, including insurers, must cooperate to at least forestall the worst consequences of climate change. Dlugolecki told the BBC after The Hague Conference that the insurance industry “was beginning to run out of money.” He predicted that unless serious steps were taken to reduce greenhouse gas emissions, the costs of natural disasters caused by climate change would exceed the world’s GDP by 2065.

“Insurance is not the answer,” Dlugolecki continued. “We need a strategic response which must be integrated into creating more sustainable societies; otherwise we are going to suffer very major damage 40 to 50 years from now.” The insurance industry can help, but it cannot single-handedly solve the problems.

Topics Catastrophe Profit Loss Windstorm Flood Climate Change Market