Climate Change Growing Risk For Insurers: Industry

Excerpt from Planet Ark, 20 January 2011

'Insurers are struggling to assess the risks from climate change, industry officials say, with the floods in Australia and Brazil highlighting the potential losses from greater extremes of weather.

Scientists say a warmer world will cause more intense drought, floods, cyclones as well as rising sea levels and the insurance industry says the number of weather-related disasters has already soared over the past several decades.

Adding to the risks is a growing human population, more people moving into cities, particularly in Asia, and more property in the path of increasingly volatile weather.

This makes it harder to tease out a direct climate change link in ever rising losses, experts say. Lack of long-term weather data in some parts of the world is also clouding the picture.

Another problem is the narrow time horizon insurers typically focus on. Reinsurers, for instance, renew their contracts annually based on past losses, meaning they aren't so concerned about trends decades in the future.

"There is still a fair amount of uncertainly as to climate change and the attribution of climate change to natural events or man-made and therefore it has not translated yet into the pricing," Yves Guerard, secretary-general of the Ottawa-based International Actuarial Association, told Reuters...

Rapidly growing megacities were a major concern for the market, he said, pointing to UN data showing 231 million people living in cities in Asia in 1950. By 2050, that figure is forecast to grow to nearly 3.5 billion."

Increased exposures with megacities coming up, low insurance penetration and key exposures being in emerging markets where most of the insurance growth has been happening. That's a time bomb," said Jan Mumenthaler, head of the International Finance Corporation's insurance services group.

In Australia, rising coastal urbanization and a rapidly expanding mining sector means a growing risk of weather-related insurance losses. The government has said the floods since last month are expected to be the nation's costliest natural disaster, with damage and reconstruction estimates between $5 billion and $20 billion...

Munich Re says the number of weather-related natural catastrophes has more than doubled since 1980.

Overall losses from weather-related natural catastrophes rose by a factor of 3 in the period 1980-2009, taking inflation into account, while insured losses from such events increased by a factor of about 4 during the same period. Total insured losses from natural disasters in 2010 was $37 billion, it says...'