Insurers must adapt to climate change
By John Nelson,
Chairman of Lloyd's of London
(theguardian.com) – There is no doubt the climate is changing. Each of the past three decades has been warmer than the previous one, and the vast majority of scientific evidence points to this being caused by mankind's reliance on carbon-based fossil fuels.
While understanding weather patterns and the risks associated with major weather events has always been critical to the insurance industry, climate change has recently brought the need for better modelling of future weather into sharp focus.
According to the World Bank, weather-related losses and damage have risen from an annual average of about $50bn in the 1980s to close to $200bn. Lloyd's knows this all too well, the damage wrought on the US by the hurricanes Katrina, Rita, and Wilma in 2005 and Superstorm Sandy in 2012 to name but a few all brought significant claims to the insurance market.
Many types of business we insure are affected by climate change. There are the obvious ones such as property, catastrophe and crop insurance. But Superstorm Sandy taught us that the reach of extreme weather is far greater than that. The destruction Sandy brought to the eastern US seaboard was responsible for claims of up to $300m in lost fine art, a consequence of the many expensive US beachfront homes damaged. Modelling has shown that the approximate 20cm of sea-level rise at the southern tip of Manhattan Island increased Sandy's surge losses by 30% in New York alone.
As a response, our recent Catastrophe Modelling and Climate Change report calls for the insurance industry to take seriously the impact of climate change and the implications it poses for the industry. The first step has to be making sure that catastrophe models can properly account