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Insurers See Growing Risks from Climate Change

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Insurers See Growing Risks from Climate Change

In 2011 there were 14 natural disasters in the U.S.A, the most ever known.

In the United States, when it comes to discussion on climate change, the public being mainly take the conservative line and believe it is all a conspiracy theory dreamt up by Scientists seeking more money for grants or from Greens or liberals from the left of the political divide.

However USA's insurance companies are now warning that these costs to taxpayers and businesses will continue to soar because of climate change. .After a year of over $1 billion record breaking natural disasters, can you really blame them?

The insurers at a press conference recently discussed the mounting financial impact of global warming. Both Vermont and Rhode Island last August felt the brunt of Tropical Storm Irene, one of the record 14 natural disasters in the United States last year that each caused more than $44 billion in damage.

Irene alone, which first came ashore as a hurricane, killed at least 45 people and caused more than $7 billion in damage.

It may be true that no industry better understands the impact of global warming than the insurance industry whose job it is to analyze risk, and their leaders are speaking out about the need to reverse global warming. Extreme weather events, like Rhode Island’s historic floods in 2010, can result in the loss of homes, livelihoods, and even lives.  These extreme events fit a pattern predicted by climate scientists, and action is being demanded by insurers and some Senators in Congress. to minimise the damage that carbon pollution is causing to their country and more importantly he rest of the world.

Property and casualty insurers in the United States experienced an extraordinary $44 billion in losses last year when hurricanes, droughts, tornadoes and other natural disasters were more severe, longer, more frequent and less predictable than in the past.

The Reinsurance Association of America  stated that from the insurance industry’s perspective, the footprints of climate change are all around and the trend of increasing damage to property and threat to lives is clear,.

According to Swiss Reinsurance Company Ltd., the average weather-related insurance industry loss in the U.S. was about $3 billion a year in the 1980s compared to approximately $20 billion annually by the end of the past decade. They say that a warming climate will only add to this trend of increasing losses, which is why action is needed now. Extreme weather is a threat today and a greater threat tomorrow, said a chief risk officer at an International Reinsurance Brokerage.

One Insurer stated that the climate is changing, human activity is helping to drive the change, and the costs of these extreme weather events are going to keep ballooning unless we break through our political paralysis, and bring down emissions that are warming our planet. Insurers is the USA believe that if we continue on this path, extreme weather is certain to cause more homes and businesses to be uninsurable in the private insurance market, leaving the costs to taxpayers or individuals.

However, the political will in the USA is weak. Certainly the Conservative Republicans, and some Democrat politicians are sceptical about the relationship between climate change and increasing natural disasters. Even here in Australia, the Conservative Coalition opposition, are in denial of the need to be part of reducing Carbon emissions, the leading cause of climate change. They sacked a leader who believed in it. While in a bid to capture the centre ground of the political debate, they are promoting providing financial incentives to encourage business to reduce their emissions, it is likely they will have to either have to keep increasing the incentives to get results or more likely scrap the whole plan due to the excuse to reign in government debt.

The current Federal Government is bringing in a mandated price on carbon from the 1 July 2012 with the aim to move to an Emissions Trading system within a few years after. The Conservative opposition is committed to scrapping it “with their last political breath”. The Conservatives continue to lead substantially in the opinion polls against a very un-popular Prime Minister, despite the leadership shown on the issue.

As Insurance premiums become more and more expensive to pay for claims from these disasters, the scenario is more and more people will become un-insured or under-insured. Governments are required to look after and protect their citizens, a demand by on democratically elected governments, putting more pressure on individual tax payers and pushing governments further into debt as they rebuild after disasters. Alternatively insurers will find certain disasters un-insurable and start excluding them. We have seen this with Sea and Storm Surges as well as land subsidence. There is currently a huge debate over the issue of flood insurance which also has a man-made influence deeming it often un-insurable.

Australia is the biggest polluter per capita in the world while the USA is responsible for 35% of the world’s carbon emissions. Their biggest competitors on the world stage are China and India and one gets the feeling that they will also act on carbon emissions if other countries like Europe, USA and Australia lead the way. So while the argument that Australia is only responsible for about 1% of Carbon emissions, the fact is we must be seen to be doing something. It is also a great opportunity to lead the way with more innovative technology in this area through alternate and remedial energy sources. We have some of the best Scientists in the world and it is amazing the technology they are developing. The greatest incentive for any businesses to invest in innovation is when they are in competition or seeking to reduce their bollow line expenses. Which is why a price on Carbon is believed to be the most effective method in a free enterprise market economy.

One thing for sure is that Insurance policy holders will find premiums increasing substantially with the ever increasing natural disasters occurring around the world. Whether it is part of a natural cycle or not, we must give Climate Change the benefit of the doubt because the financial consequences otherwise will be much worse.

 I for one believe in Risk Management, and reducing the chance of potential foreseeable losses fits well into good management of risk programme. It is just that in this case, it is needed on a global scale.


  For further reading on this issue:

Liberty White Paper - Emerging Risks of Climate Change

Liability White Paper - Emerging Risks of Climate Change Part 2

Geneva Association - Climate Risk & Insurance Committee

CO2 at 800,000 year high

Last changed: Mar 14 2012 at 11:56 AM

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