The insurance industry has demanded that political leaders create a clear climate-change adaptation framework, which would help insurers calculate this risk when developing future policies.
The insurance industry’s push was one of the major developments to come out of the United Nations’ two week climate change conference in Poland. The insurers said this week that they could not be expected to bear the brunt of financing the damage caused by climate change.
Delegates are gathered to work on a climate-change deal, expected to be concluded next year in Copenhagen, on how curb carbon dioxide emissions to prevent climate change.
The industry called for measures to strengthen climate change adaptation frameworks where funds are put aside to help the world cope with the effects of climate change — so that insurers could play a role in reducing the climate risks faced by people around the world.
UN climate chief, Yvo de Boer, said that the insurance industry was critical in any deal. De Boer said the delegations were looking at the possibility of incorporating insurance schemes into next year’s expected deal in Copenhagen. One of the proposals was to give lower premiums to countries which take steps to reduce the risks of major climate disasters — such as building sea barriers and stronger homes that could better withstand storms.
Insurers already estimate that annual insurance losses from wind storms could increase by two-thirds this century. The chances of very hot summers in Europe, such as in 2003 when at least 22 000 people died of heat stroke, could increase. In 2005, $83-billion was paid in insurance claims for natural disasters, a record year that saw Katrina and other hurricanes devastate southern coastal US cities.
With $16-trillion in global invested assets and generating about $4-trillion in premium revenue in 2006, the insurance sector is the world’s largest economic sector. Leading world insurer Munich Re has calculated that by 2050, climate change could cost up to $300-billion annually in weather-related damages, industrial and agricultural losses, and other associated expenses.
In South Africa, insurance company Santam has decided to factor climate-change risk into its insurance premiums, and is busy developing a business plan. The company says climate change is possibly the biggest challenge facing the industry.
Santam will assess an individual’s climate-change risk by taking a client’s physical address and putting it into a climate-change database that will predict what will happen to this address in the future. Thus anyone unlucky enough to live in an area affected by floods, could become a high insurance risk.
‘While we are used to the impact of cycles in both the economy and climate on the balance between premiums and insured losses, climate change is different,” said Ray-Ann Sedres, integrated sustainability manager at Santam. ‘More volatile climatic events create less certainty and lead to bigger claims, which inevitably results in more complex and higher pricing structures and the potential for certain risks and events to become uninsurable.”
Andrew Torrance, chairperson of an association of 42 insurance companies called ClimateWise, said in Poland that insurance could not be an alternative to adaptation.
‘Rather robust adaptation is a necessary condition for insurers to play a full role,” he said. He called on governments to prepare for the coming effects of climate change.
‘The role of insurance is fundamental in coping with climate risks, because insurance enables business and individuals to manage risks,” he said.