Out-Law News 2 min. read
05 Nov 2009, 2:33 pm
Research commissioned by the ABI has concluded that a 4°C rise in average global temperatures could increase the average annual insured loss caused by floods in Great Britain by 14% to £633 million.
In order to comply with minimum capital requirements, this would mean insurers would need to add a further £1.9 billion to the £5.9 billion capital they currently hold to cover inland flood losses. This in turn is likely to result in higher premiums and may reduce the availability of cover if insurers reduce capacity in response to the increased risk or find they cannot maintain sufficient capital.
The report, The Financial Risks of Climate Change, has been produced by the Met Office and climate catastrophe risk modelling experts AIR Worldwide Corporation.
As global temperatures rise, weather events such as floods and typhoons are expected to be more frequent and more severe. Combining the latest climate models with insurance risk models, the research examined the implications of 2°C, 4°C and 6°C rises in average global temperatures on inland flooding and winter windstorms in the UK and on typhoons in China.
The report concludes that, in Great Britain, the greatest impact of climate change will be on rainfall and inland flooding, with the risk of extreme flood events likely to increase.
Results will vary from region to region. A 4°C rise could mean a 14% increase in the annual insured flood loss for the country as whole, but regional increases could vary from less than 10% to nearly 30%.
The research found no clear link between global temperature increases and the frequency or severity of windstorms. But windstorm activity is likely to be affected by predicted changes in storm track, which could increase the frequency of storms passing over the country.
Even a fairly modest shift in storm track of 1.45° southwards could increase average annual insured wind losses in the UK by 25% to £827 million. This could mean insurers would need to add a further £1 billion to the £8.6 billion capital currently required to cover UK windstorms.
In China, the report concludes that a global temperature rise of 4°C could increase average annual insured losses from typhoons by 32% to £345 million. Insured losses arising from the sort of event expected to occur once in every 100 years could increase by 9% to £838 million.
Commenting on the report, Nick Starling, the ABI’s Director of General Insurance and Health, said that the findings had serious implications for insurers, householders, businesses and governments.
"The continued widespread availability of property insurance in the future depends on taking action now to manage the threats of climate change" warned Starling.
“A two-degree temperature rise may be inevitable, but we can limit further increases. The clear message to world leaders meeting at the UN’s Copenhagen Climate Change Summit in December is that they must reach agreement on ambitious emission reduction targets.
"And, closer to home, the UK Government needs to push ahead with the Flood and Water Management Bill, and ensure long-term investment in flood management as a priority, so that the long-term flood risk is better managed.”
