Climate Change Growing Risk for Insurers Industry
Jan 21, 2011 - David Fogarty - Rueters
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
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
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
"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.
Some insurers are seeing a climate change link and
"Ignoring global warming will risk an increasing
exposure and therefore insured losses will escalate," said
Scott Ryrie, CEO of Allianz SE Reinsurance Asia-Pacific
"I believe climate change will add something
to the losses we see already but I don't believe
losses will be dramatically changing. It's just going
to make the losses worse," he told a climate
change and insurance conference in Singapore.
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
"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.
"In some regions of the world, we have already
seen changes in the patterns in terms of frequency
and intensity of these events," said Ernst Rauch
of global reinsurer Munich Re.
He pointed to changes in rainfall patterns and more
intense thunderstorms, hailstorms and tornados. "The
U.S. is a prime example but also parts of Europe," he
told Reuters in Singapore.
"But you cannot generalize and say that the
weather patterns have changed already in all parts
of the world in the same way. There is no evidence
for this," said Rauch, head of the firm's Corporate
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.
While taking into account rising wealth, population
and urbanization, "there is evidence indicating
that the growing number of weather-related catastrophes
most probably cannot be fully explained without climate
change," the company says.
Rauch said the industry was struggling to get an
accurate picture of the extent of climate change
"It is not easy. And quite frankly, it would
help if more companies in our industry would have
more expertise and experts analyzing these risks," he
Insurers use complex models to calculate catastrophe
risks, but here, too, there were challenges.
"There's a huge amount of variability in the
models and understanding that variability is hugely
key," said David Simmons, managing director,
analytics, of the Willis Group, a global insurance
"And climate change adds another layer on to
that. And so it's very hard. There's a fundamental
lack of data," he said, pointing to lack of
long-term global weather data.
"So trying to dis-engage natural climate variability
-- there are cyclical changes like El Nino and La
Nina -- and then any underlying thing, is tough.
But we are getting better at it," he told Reuters
at the conference.