Insurance and Climate Change column

Enviro Risks, Climate Change Lead Concerns in World Economic Report

By | January 17, 2019

Environmental risks continue to dominate long-term concerns, a new report shows.

World Economic Forum’s Global Risks Report 2019 released on Wednesday included as collaborators Marsh & McLennan Cos. and Zurich Insurance Group, as well as academic advisers at the Oxford Martin School, the National University of Singapore and the Wharton Risk Management and Decision Processes Center.

The report also cites concerns over international relations “hindering action across a growing array of serious challenges,” and “a darkening economic outlook” that is partly being driven by geopolitical tensions that looks set to further reduce the potential for international cooperation in 2019.

The report incorporates the results of the annual Global Risks Perception Survey of roughly 1,000 experts and decision-makers. It warns that growth in 2019 will be held back by continuing geo-economic tensions, with 88 percent of the survey respondents expecting further erosion of multilateral trading rules and agreements.

Read the full report on Insurance Journal’s Research and Trends section.

Cyber risks were even more prominent among concerns than last year.

However, environmental risks continue to dominate respondent concerns beyond the short term.

All five of the environmental risks the report tracks are again in the high-impact, high-likelihood category: biodiversity loss; extreme weather events; failure of climate-change mitigation and adaptation; man-made disasters; and natural disasters.

“2018 was sadly a year of historic wildfires, continued heavy flooding and increasing greenhouse gas emissions,” Alison Martin, group chief risk officer at Zurich said in a statement. “It is no surprise that in 2019, environmental risks once again dominate the list of major concerns. So, too, does the growing likelihood of environmental policy failure or a lack of timely policy implementation. To effectively respond to climate change requires a significant increase in infrastructure to adapt to this new environment and transition to a low-carbon economy.”

According to Martin, by 2040, the investment gap in global infrastructure is forecast to reach $18 trillion against a projected requirement of $97 trillion.

“Against this backdrop, we strongly recommend that businesses develop a climate resilience adaptation strategy and act on it now,” she added.

The top five risks in terms of likelihood outlined in the report are:

  1. Extreme weather events
  2. Failure of climate-change mitigation and adaptation
  3. Major natural disasters (earthquake, tsunami, volcanic eruption, geomagnetic storms)
  4. Massive incident of data fraud/theft
  5. Large-scale cyberattacks

The top five trends were:

  1. Changing climate
  2. Rising cyber dependency
  3. Increasing polarization of societies
  4. Rising income and wealth disparity
  5. Increasing national sentiment

Coffee

If you’ve ever been to an insurance conference, you know there’s an abundance of two things: networking opportunities and coffee.

One of those things is in danger because of climate change, according to a study published in Science Advances, which found that 60 percent of wild coffee species are under threat of extinction, including Arabica. Arabica accounts for 60 percent of global production.

“We propose that wild coffee species are extinction sensitive, especially in an era of accelerated climatic change,” the authors note in the study.

The study outlines threats that include climate change, especially the increasing incidence and duration of drought, the spread and escalating severity of fungal pathogens, the spread of other diseases and pests, and social, economic and market-based factors.

It shows 75 coffee species (60 percent) assessed as threatened with extinction, including 13 that are considered to be critically endangered, 40 endangered and 22 vulnerable species.

The proportion of coffee species threatened with extinction is high compared with a global figure of 22 percent for all plants, and is considered to be one of the highest levels recorded for a plant group.

Nearly all coffee species are experiencing a continuing decline in the quality, area, and extent of available habitat, according to the study.

“Habitat loss is mainly due to land use change, especially forest loss, predominantly because of agriculture, livestock farming, and settlement and development, mostly associated with farming,” the study states. “Timber collection is also a threat for many coffee species; coffee timber is often straight, hard, and termite resistant and frequently collected for minor construction purposes and fuelwood.”

Health and Climate Change

A report in the New England Journal of Medicine shows that rising global temperatures could lead to many more deaths than the 250,000 a year the World Health Organization predicted five years ago.

In an article published on CNN’s website on Wednesday, one of the report’s authors called the 250,000 deaths forecast from WHO in 2014 a “conservative estimate.”

“We think the impact is more difficult to quantify because there is also population displacement and a range of additional factors like food production and crop yield, and the increase in heat that will limit labor productivity from farmers in tropical regions that wasn’t taken into account among other factors,” said Andrew Haines, a British epidemiologist.

The report shows that by 2050 climate change-related food shortages could produce a net increase in 529,000 adult deaths, and that climate change could force 100 million into extreme poverty within the next 10 years.

WHO in 2014 reported that climate change will bring with it malaria, diarrhea, heat stress and malnutrition, killing that many more people annually around the world from 2030 to 2050, according to the CNN article.

“Future generations will, no doubt, look back at the missed opportunities for progress towards a healthy, sustainable economy and question why decisive action wasn’t taken sooner,” Haines said. “It is imperative to increase the scale of ambition and emphasizing the potential health benefits of doing so now and for future generations could help to motivate progress.”

Foreclosures

A foreclosure crisis driven by climate change?

Such was the suggestion in a CNBC article on Thursday.

The article notes that extreme storms and other natural disasters increasingly occur in places where borrowers might not have flood or fire insurance, and the industry is not prepared for the effects of such extreme weather and rising sea levels.

“If we look at the basic foundation of what drives the mortgage market, it is the application of credit risk,” Ed Delgado, CEO of the national mortgage trade association the Five Star institute, told CNBC. “What’s missing is the understanding of weather risk and where those weather events can take place.”

The article notes that the mortgage market is not factoring the overall risk posed by climate change and severe weather into its loan underwriting, and so is not quantifying the amount of potential losses if a “wide swath of borrowers” walk away from damaged or destroyed homes.

“Whether it’s fires and mudslides in California, flooding in Texas, or tornadoes in the Oklahoma region,” Delgado said. “It’s going to be a problem if the banks don’t start to pay closer attention to what those weather risks are.”

The article used Hurricane Harvey in 2017 as an example. Roughly 80 percent of the nearly 1,000 Houston-area homes did not have flood insurance because they weren’t normally prone to flooding, and it cites CoreLogic data that shows “serious mortgage delinquencies” on damaged homes jumped more than 200 percent.

Houston survived because it was already a hot housing market and people still wanted to live there after the storm, but Houston should be a wake-up call to the rest of the nation, Delgado said, adding that the damaged homes were largely not in FEMA flood plains and were therefore not required to have flood insurance.

“You have this tremendous urbanization, population growth. Roads that are being built in the last 10 years. Where does the water go?” Delgado told CNBC. “And is there an underlying risk for us to examine with respect to our portfolio? And then make decisions. Should we be lending in those markets?”

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