Climate change seen posing big risk for insurers

Climate change seen posing big risk for insurers

3 October 2007

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SYDNEY (Reuters) – The global insurance industry faces substantial risks fromclimate change due to the increased incidence of cyclones, floods, drought andbushfires, a major European reinsurer told the Greenhouse 2007 conference.

Losses from tropical cyclones were increasing particularly strongly, EberhardFaust, head of climate risks at Munich Re, he told the conference organized bythe Australian government-backed Commonwealth Scientific and Industrial ResearchOrganization.

Increasingly built-up coastal areas were highly susceptible to catastrophesassociated with climate change, with potential annual losses now $200 billionagainst $25 billion in 1950. Hurricane Katrina caused about $66 billion inlosses in 2005 when it devastated the southern United States city of NewOrleans, just a year after Hurricane Ivan caused $13.7 billion in propertydamage in the Caribbean.

Global flood catastrophes were also growing, with flooding in Europe in 2002causing $3.4 billion in insurance losses.

Australia was increasingly vulnerable to drought and storms, Faust said.

Cyclone Larry, which slammed into Australia’s far north Queensland state in2006 hitting the region’s banana and sugar industries, caused losses of $1.75billion. The drought of 2002, Australia’s worst in 100 years, caused losses of$2.5 billion.

Drought and bushfires accounted for 39 percent of the country’s overallinsurance losses of $24 billion between 1980 and 2006.

Australian insurers have also recently warned of greatly increased risk fromrising sea levels caused by global warming.

The United Nations Intergovernmental Panel on Climate Change has projectedsea level gains of up to 59 centimeters (23 inches) this century as risingtemperatures melt polar ice. Scientists say the rise could be much greater:possibly well over 1 meter.

Scores of properties along fashionable parts of the vast Australian coastlinewere likely to become uninsurable, Barrie Pittock, the former head of theCSIRO’s climate impact group, said earlier this year.

The incidence of extreme weather conditions in Australia was likely toincrease sharply in the year ahead, Faust told the conference, with 20 percentmore months of drought forecast by 2030 and up to a 25 percent increase in thefrequency of bushfires.

Risk of floods would also increase, along with a 20 percent rise in thefrequency of major east coast cyclones by 2050, he said.

The current drought was expected to cut Australia’s gross domestic productgrowth by possibly more than 0.75 percent, the country’s chief scientist JimPeacock told the conference.

“Living on many parts of the globe will be difficult for humans,”he said.

On a more positive note, Faust also said business opportunities abounded incountering climate change, including the development of renewable energy,increased water-use efficiency, water recycling and desalination.


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