INSURANCE premiums against floods and other disasters are set to rocket because the world’s biggest insurance companies are getting nervous about climate change. Swiss Re, a company that provides insurance for other insurers, warned in a report this week that premium hikes are inevitable.
The big fish of the insurance industry are already alarmed about the rising tide of large claims for climatic disasters such as floods, hurricanes and heatwaves, which between them have caused damage estimated at half a trillion dollars over the past decade. “The number of really big weather disasters has increased fourfold compared to the 1960s,” says Thomas Loster from Munich Re, another big firm that insures insurers – a business known as reinsurance.
Now Swiss Re’s risk analysts are pointing to the hidden costs of smaller changes in the weather. “A few rainy days less per year, a somewhat lower incidence of frost, a few more particularly warm days. This may sound relatively harmless, but it is not,” warns the report (see ). Extreme weather appears much more catastrophic because it wins extensive media coverage. However, persistent but less obvious changes to climate can also cause problems.
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For instance, in July 1995, a heatwave in Britain raised average temperatures by 3 degrees. This small rise caused the death rate to increase by 5 per cent. Crops failed, cattle breeding faltered and trout tanks emptied. The bill to farmers alone was £180 million. Add in factors such as emergency water supplies that had to be brought in as reservoirs dried up and the total bill goes up to £1.5 billion – much of it paid for by insurance companies.
“Losses that were previously an exception may become the rule,” says Swiss Re’s chief risk officer Bruno Porro. He says insurance companies need to reassess the risks for these events now and bump up premiums to offset massive payouts. If other insurance companies are too slow to adapt to the changed climate, Porro says companies such as Swiss Re “will not be prepared to share the burden”, and the other companies will have to take the losses on their own. Some high-risk activities, such as insuring property on low-lying islands and providing cover against forest fires or a lack of snow at ski resorts, may prove so risky in the future that no insurance companies will cover them at all.
Environmentalists will be happy that insurance companies are adding their voice to the cry that climate change is happening and needs to be addressed. But they may not like some of the solutions that insurers suggest to keep down premiums. “A likely answer to a series of failed harvests caused by climate change might be the increased use of genetically modified crops,” claims Porro.