The Association of British Insurers (ABI) has released a ground-breaking report, “Financial Risks of Climate Change,” which shows that the worldwide costs of major storms is likely to increase by as much as two-thirds taking the total cost in an average year to £15 billion ($27 billion).
The study is based on international scientific research, much of which was supplied by AIR Worldwide and RMS. It makes the case for government action to ameliorate the potential devastating impact of severe weather. The ABI called on the leaders of the pending G8 Summit in Scotland to take immediate action on the following items:
– Reduce carbon emissions. This could save up to 80 percent of the predicted extra costs;
– Continue to improve coastal defenses and flood protection inland;
– Change building codes to ensure more weather – resilient buildings.
Speaking at an ABI international conference, yesterday, June 29, Nick Starling, ABI’s Director of General Insurance stated: “Managing the effects of climate change is a key issue for the 21st Century. Insurance is a messenger of change for future risks, as well as a provider of financial protection against the unforeseen. Governments now have a chance to make rational choices for the future, before it is too late. Making the right decisions based on first class assessment of the financial costs of climate change will ensure lower costs for the public in future.”
Keynote speaker at the conference, Margaret Beckett, the U.K.’s Secretary of State for Environment, Food & Rural Affairs, commented: “The insurance sector has a particular role to play, by calculating and communicating climate risks. And because insurance is a global business, this will bring the global nature of the climate change challenge right onto our doorsteps.”
The ABI said its report shows “that if no action were taken, the climate change scenarios modeled by the Intergovernmental Panel on Climate Change (IPCC) could have the following financial effects by 2080:
– The cost of insured damage in a severe hurricane season in the USA could rise by three-quarters to £82 billion ($150 billion), an increase equivalent to almost three Hurricane Andrews (the costliest single weather event recorded, occurring in 1992).
– The costs of Japanese typhoons could increase by around two-thirds to reach £19 billion ($34 billion). The increase would be double the cost of typhoon damage in 2004, which was the costliest year in the last 100 years.
– The financial costs of flooding could rise in both the UK and the rest of Europe, increasing the annual flood bill by up to £82 billion [$148 billion] across Europe.
– Insurance markets could become more volatile. The capital needed by insurers to cover severe storms could rise by £43 billion ($78 billion), with increases of 90 percent for US hurricanes and 80 percent for Japanese typhoons.
However, the ABI’s report also shows that many of these costs could be avoided by acting now. Under the same IPCC scenarios, by 2080:
– Reducing global carbon emissions could reduce the size of insurers’ increased capital requirements for hurricanes, typhoons and windstorms by more than £33 billion ($60 billion).
– Strong, well-enforced building codes could prevent and reduce windstorm damage. For example, if design codes for buildings in the South East of UK were upgraded by 10 percent, windstorm damage could be reduced significantly.
– Improved coastal defenses could reduce the global annual damage from a 0.5m [1.65 ft] rise in sea level by up to £16 billion ($30 billion).
– In the UK, effective flood management could save 80 percent of the costs of flood damage.
Conference Chairman Peter Hubbard, Chief Executive of AXA Insurance, noted: “Insurance is a critical component in the functioning of both global and local economies. The industry has a key role in guiding governments towards sustainable solutions. This conference will enable us to ensure we have engagement at all levels”.
Howard Posner, Chief Executive Officer of HBOS stated: “We are pleased to sponsor this conference on climate change and to be involved in the important debate on current and future challenges facing the industry. HBOS General Insurance offers its continued support to the ABI, and endorses the progress they are making in raising awareness of the major issues”.
In a separate bulletin AIR Worldwide discussed its contribution to the report and summarized its findings. Dr. Jayanta Guin, vice president of research and modeling, who headed up AIR’s analysis, noted: “The causes and effects of climate change are still the subject of much debate within the scientific community. While there are certainly ways in which global warming could potentially affect the frequency and severity of tropical and extratropical cyclones, there is still no scientific consensus on what the impact will be. What is clear, however, is that the relatively small increase in average wind speeds predicted by some scientists would produce a significant increase in insured losses.”
He added that, “while the result from increased storm frequency should not be surprising, the large increases in losses from a small increase in wind speeds may be less intuitive. From an engineering perspective, however, it comes as no surprise. Property damage can increase at almost exponential rates once certain wind thresholds are reached.”
The full ABI report is available at www.abi.org.uk/climatechange.
This is the third major report from an extremely reputable organization to issue dire warnings on the effect of climate change caused by global warming. In February scientists at the University of California of San Diego’s Scripps Institution of Oceanography and their colleagues produced the first clear scientific evidence that human activity–and very little else–is warming the world. Dr. Eberharde Faust, a member of Munich Re’s Geo Risk Research Unit who heads its work on climate change, called the work “really quite impressive.”
Yesterday we reported on a similar study from Germany’s Allianz (See IJ Website June 29). The people who’ve issued these warnings are not a bunch of befuddled tree huggers. They are scientists, business executives and engineers who are convinced from the evidence they’ve studied that there is a real problem, and that taking necessary measures now could save thousands of lives and billions of dollars.
It’s more than regrettable that the current neo-conservative dominated administration in Washington continues to deny the existence of a threat that the rest of the world, including many people in the U.S., has long come to recognize as real. One can only hope that for the sake of all the potential victims (and the insurance industry) the oval office ostriches will eventually pull their collective heads out of the sand.