Climate Change: Insurers Warn of Rising Costs and Unavailable Insurance Cover

World leaders meeting at the Group of Eight summit in Gleneagles failed to set targets or a timetable for action on climate change, despite a warning from environmental groups that the impact of climate change is being felt increasingly around the world. Extreme weather events have cost the insurance industry between €10bn and €15bn in recent years, with Europe experiencing three such events in the past decade. Insurers are already analyzing climate trends and their likely impact, with the Association of British Insurers predicting that the worldwide cost of large storms could increase by up to two-thirds to £15bn in an "average" year by the end of the century.

Key Takeaways:

• Insurers are warning of rising costs and increasingly unaffordable insurance cover due to climate change.
• The Association of British Insurers predicts that the worldwide cost of large storms could increase by up to two-thirds to £15bn in an "average" year by the end of the century.
• A worst-case scenario could see the cost of insured damage caused by a severe hurricane season in the US rise by three-quarters to £82bn in 2080.
• In the UK, the annual cost of flooding could rise almost 15-fold to £22bn by 2080 if carbon emissions continue at a high level.
• Insurance companies are developing sophisticated mapping techniques to identify areas most likely to flood and areas liable to subsidence.
• However, these limitations mean that postcode data can fail to distinguish between houses at the top and bottom of a hill.
• Insurers aim to extend flood maps to cover coastal and flash flooding, subsidence, and wind damage.
• The ABI expects an 80% increase in the "risk premium" in the US hurricane and Japanese typhoon markets by 2080.
• In the European windstorm insurance market, the risk premium is expected to rise by 15%.

Statistics:

• The European insurance industry has borne the cost of three extreme weather events in the past decade, costing between €10bn and €15bn each.
• The Association of British Insurers predicts that the worldwide cost of large storms could increase by up to two-thirds to £15bn in an "average" year by the end of the century.
• A worst-case scenario could see the cost of insured damage caused by a severe hurricane season in the US rise by three-quarters to £82bn in 2080.
• The annual cost of flooding in the UK is predicted to rise almost 15-fold to £22bn by 2080.
• In the US hurricane market, the "risk premium" could increase by 80% by 2080.
• In the European windstorm insurance market, the risk premium is expected to rise by 15%.

Sources:

• Association of British Insurers, Financial Risks of Climate Change
• Andrew Torrance, chief executive of Allianz Cornhill Insurance
• David Pitt, head of insurance at More Than
• Norwich Union, press release (no date provided)