Insurance costs to soar as temperatures rise

Peatling S. (2002, Dec 20). Insurance costs to soar as temperatures rise. Sydney Morning Herald (Australia). Retrieved Jul. 27, 2011 from LexisNexis Academic

Climate change is being blamed for potential insurance premium rises as hailstorms and bushfires cause increased damage.

Australia's largest general insurance company, 

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Insurance Australia Group, urged immediate action to deal with rising global temperatures.

The chief risk officer and group actuary for IAG, Tony Coleman, told a climate change conference in Canberra that "human-induced climate change is now a reality and it must be addressed with appropriate urgency".

As global temperatures rose, climate-related events such as cyclones, floods, bushfires and storms would increase. A small increase in temperature could have a dramatic effect on the level of damage, he warned.

The company has begun lobbying governments on the issue of climate change.

Public awareness campaigns were needed to identify areas vulnerable to events such as floods, as were changes to building codes. Mr Coleman also said the impact of climate change should be considered when processing development applications.

"The biggest question we then need to address is how much the changing climate will affect us and our biggest challenge lies in minimising the additional risk associated with human-induced climate change," he said.

Over the past 15 years, IAG had paid $1.3 billion in weather-related home and motor vehicle insurance claims in NSW.

Claims made because of storms made up a large part of that figure, he said, and the April 1999 hailstorm was responsible for a quarter of claims in that time. "Therefore, changes to the nature of these extreme events could appreciably alter the risk to people and property and ultimately impact on the price and availability ofinsurance."

Mr Coleman said the insurance sector was moving towards identifying homes in at-risk areas. Insurance companies would consider putting conditions oninsurance, such as standards for roof strength in places where hailstorms were considered a possibility.

Data from IAG claims showed that once wind gusts reached a certain level, serious damage was more likely to be caused by things such as falling trees and roof sections being blown off. Double the wind speed could could cause four times more damage. An average increase in temperature of one degree could result in a 17 to 28 per cent increase in bushfires.

Similarly, hail below a certain size would not cause significant damage to things like car panels, but, once the size passed a certain point, damage could increase substantially.

Across the world, 85 per cent of natural catastrophes between 1960 and 1999 were weather-related. In Australia, 87 per cent of economic losses from natural disasters were caused by weather-related events.

The average annual cost of natural disasters to NSW was nearly $485 million, and more than $1 billion Australia-wide.

"From a meteorological point of view, a storm which is classed as an extreme event may not be much more severe than a level of storm intensity that occurs regularly each year," Mr Coleman warned.

"However, they can achieve huge increases in damages through the breaking of critical thresholds.

"Insurance industry experience shows that even small increased in event severity can cause multiple increases in damages."

Extreme weather a risky business

Blazey, P, and P. Govind. (2008, Apr 7 ). Extreme weather a risky business.Canberra Times (Australia), Retrieved Jun. 27, 2011 from LexisNexis Academic 


Extreme weather patterns are causing, and will continue to cause, significant property damage across Australia. The question of "who pays" is becoming a serious issue for insurance companies and governments alike.

Global warming is contributing to unpredictable and violent weather patterns. While it will never be possible to definitely attribute a severe weathercatastrophe to climate change, it increases the conditions that foster these types of events.

Following the astronomical financial damage caused by Hurricane Katrina in the United States in 2005, the question arises as to whether the insurance industry will retreat from offering protection in areas of extreme or catastrophic weather.

Predictions in the Garnaut climate change review outlined increased intensity for tropical cyclones in Queensland and more frequent and severe hailstorms for NSW. It is accepted that in the face of unpredictable consequences insurance premiums will rise. Two major questions arise for the industry: 1) How does climate change affect the industry where historically people who have suffered loss have relied upon insurance for financial support?

2) As climate change has introduced an era of instability, can insurance companies offer innovative solutions rather than simply increase premiums?

Insurers have historically adapted to change. However , the environment is now constantly changing and different permutations of the impact and damage are influencing our understanding of risk.

The insurance industry has managed risk in the past because it has been able to adequately assess it and build a policy framework around it. Managing and regulating climate change- related risk relies heavily upon the availability of accurate, relevant and updated information.

Yet in the face of such unpredictable change it will be become increasingly difficult to determine risks.

Insurance is a form of risk regulation. Through policies, insurance companies can modify behaviour by demanding that certain standards, such as adaptive measures, are met before an applicant may invest in a policy. Currently, victims of the effects of climate change catastrophes rely on pay-outs that are no longer viable as the experience of severe weather activity escalates. The Intergovernmental Panel for Climate Change noted that "social and behavioural issues are a major constraint on action to reduce carbon emissions". By linking financial security to environmental planning, the effect of climate change insurance is a powerful leveraging tool.

If the benefits of insurance are to be realised, adaptation must be proactive rather than reactive.

This is an important distinction.

The industry must attach conditions to policies that ensure its survival and viability while also promoting proactive adaptation.

Despite information or education campaigns, problems still exist with regard to motivating people to take responsible measures to reduce risks associated with climate change.

Government aid, while crucial, is not proactive and can lead to cases of non-insurance or underinsurance.

The Garnaut report suggests that the best role for government is helping individuals make informed decisions and ensuring as far as possible that citizens have access to affordable and effective insurance.

The authors are academics at Macquarie University's department of business law.

A world of extreme weather solutions

Hoare, S. (2011, June 16). A world of extreme weather solutions; With the increase in natural disasters, climate change degrees are in hot demand. The Independent. Retrieved July 25, 2011 from LexisNexis Academic. 

The tsunami that sparked a meltdown in Japan's Fukushima nuclear plant demonstrated the threat posed by natural disasters to the world's developed economies.

Once considered rare events, catastrophic floods, tornadoes and forest fires are a symptom of climate volatility, much of which - Japan's tsunami excepted - can be attributed to man-made global warming.

Damage caused by these freak catastrophes adds up to many billions of pounds; they destroy lives, devastate economies and lead to corporate bankruptcies and huge insurance payouts.

Little wonder Masters degrees in climate change are attracting serious attention. "In the early 2000s I was knocking on doors in the City of London saying, 'You've got to take climate change seriously'," says Professor Stephan Harrison leader of Exeter University's MSc in climate change and risk management. Lloyd's of London now sponsors a PhD in climate change at Exeter, and insurance companies regularly send experts to lecture MSc students on risk management and actuarial calculations.

Based in Exeter, the Met Office - another influential partner - is helping the university design a new suite of Masters programmes to run from 2012 and be taught by a mix of Met Office and university faculty. These programmes embrace not just science but politics, economics and social policy.

Exeter has two Masters degrees in climate change. Besides Professor Harrison's MSc, an MA in climate change has been running for two years that, together with a new research centre, the Environmental Sustainability Institute, is run from the university's Penrhyn campus near Falmouth.

Exeter is one of the top five most respected research-based postgraduate institutions specialising in climate change in the United Kingdom. The other front-runners are UEA, Oxford, Leeds and UCL. Professor Harrison describes himself as a paleoclimatologist.

He studies geological strata and sedimentary rock formation for evidence of past climate change.

That evidence is sometimes shocking, such as the tsunami that hit the east coast of Britain 8,000 years ago when it was still joined to continental Europe by a land corridor. "We call it the Storegga Slide," says Harrison. "Melting glaciers caused a submarine landslide of sedimentary deposits off the Norwegian coast, sending an 11m wave crashing into Britain, Iceland, Greenland and North America."

The nuclear power plants that are now being considered for the UK may not face tsunamis, but construction plans need to take into account theeffect of rising sea levels and the fact that the south-east of England is slowly tilting towards the sea.

So, back to the risk assessment. Exeter postgraduate students are mainly destined for jobs as specialist risk managers working for big insurance companies, or as environmental consultants working for government agencies or private practices. Recent graduates come to Exeter from geography or humanities degrees, and half of the student cohort of 20 are early career professionals working for local authorities, banks or insurance companies.

Exeter's MSc is split into three parts: in the first term, students are taught theory, including understanding the methodology and statistics of the carbon cycle, flood risk and global weather patterns such as the North Atlantic oscillation and the Gulf Stream. Term two focuses on risk management and how the insurance industry and private companies are addressing climate change through impact assessments.

The third term is devoted to student dissertations. Ian Cable, 30, is doing his on how sea defences and biodiversity will be affected by climatechange and has been studying local harbour works near the university.

The Masters is a chance to move up the career ladder in a specialised field: "When companies undertake a major building project such as a new factory they must do due diligence, in which the effect of climate change is now an acknowledged risk," explains Harrison.

This involves researching the likely effect of extreme weather - the causes and frequency of flooding, for example - and then designing measures to mitigate the effect.

With a first degree in geology, Cable used to work for the Environment Agency as a facilities manager before applying to Exeter. "I applied there because it offered a career-specific discipline that isn't widely available. Most related Masters degrees are about sustainable development or sustainable energy. I think there are better employment prospects from this course."

Cable likes the focus of the taught Masters and has come to realise that the phenomenon of climate change is unlikely to be affected by short-term policies such as eco-taxes or carbon trading. "Climate change is driven primarily by carbon dioxide related solely to the generation of energy.Climate change isn't an environmental issue, it's an energy issue," says Cable.

Luci Isaacson came to the MSc programme from a first degree in geography, also at Exeter. She plans to set up a risk management consultancy with two other students from the course. "The need to reduce your carbon footprint is well established nowadays. I'm writing a dissertation on what organisations and charities can do to inspire people to cut their use of energy and prepare for a new way of living. I'm looking at ways of persuading people that even small changes in behaviour can make a big difference," she says.

There's a lot that governments and private companies can do to reduce energy consumption and protect themselves from the impact of climatechange. The insurance industry is starting to incentivise clients to conduct risk assessments of climate change by offering reduced premiums if they can prove they are managing risk. "It's not just the reputational risk from failing to plan for a climate-related disaster, there's also the potential for litigation," says Harrison, possibly thinking of Heathrow's five-day closure due to unanticipated heavy snow last winter and the ensuing travel chaos.

Harrison warns that governments have been slow to respond. "The rise of global temperatures is unprecedented: the rate of increase over the past century would normally have taken place over tens of thousands of years.

We have carbon dioxide levels this earth has not seen for at least 700,000 years; there's absolutely no doubt man's activities are to blame," he says.

Insurance firms payouts

Timm, S. (2010, August 25). Insurance firms face stormy weather and bigger payouts. Business Day (South Africa). Retrieved July 25, 2011 from LexisNexis Academic. 

Insurance firms face stormy weather and bigger payouts

WITH climate change expected to result in an increase in environmental risks, SA's insurance industry will have to start looking at engaging local government officials and business to bring down the cost of insuring local companies.

The Council for Scientific and Industrial Research (CSIR) and the University of Cape Town (UCT) have embarked on a pilot project in the southern Cape to study what insurance firms can do to mitigate the effects of climate change and how the sector can best adapt its practices.

Deon Nel, manager of the eco systems group at the CSIR, says that globally a number of studies have shown that the amount insurance companies were paying to weather-related claims was escalating annually.

Nel says that between 1980 and 2004 the global insurance industry paid out about $374bn in insured property losses to natural disasters. Insured weather-related losses increased 17-fold between the 1960s and 1990s, outstripping increases in gross domestic product (GDP), population or premiums. He says these trends could be linked to global changes in the risk landscape for the sector.

CSIR researchers hope to be able to illustrate how planning decisions by influential local stakeholders such as municipalities that oversee approval for developments affect exposure to risks such as flood damage, fire and coastal sea storms.

He says that for example the chance of severe floods could be reduced if local authorities ensured that inappropriate developments did not take place in wetlands or on flood plains. Similarly the risk of fires could be countered by ensuring that absentee landlords cleared vacant plots of alien vegetation, which could fuel runaway fires.

Nel says changes to the environment by humans were among the biggest drivers of risk exposure to worsening environmental disasters.

He says the researchers were looking at the role informal insurance schemes play in offering risk cover in the advent of extreme events and how these could interact with formal insurance firms.

Nel says the insurance sector may need to consider the way it calculated a risk profile for a development or product. Traditionally the sector evaluated risk based on the occurrence of past events, but with increased variability in weather patterns brought on by climate change this would no longer be possible.

Deon Nel ... sector must adapt to the effects of climate change.