Climate change

1
Climate change

• An insurers nightmare,
• or the chance of a lifetime?
• Jane Milne
• Association of British Insurers

2
Health Warning

• The discussion that follows in this presentation
  is based on a number of climate change scenarios
  developed by the Hadley Centre and others.
• Predicting future climate patterns is not an
  exact science the scenarios do however offer
  the best appreciation of the issues confronting
  insurers.
• Critical analysis of the data and assumptions is
  essential, albeit that the scale of the problems
  suggests the need for a precautionary approach.

3
Who thinks climate change is happening?

• We would be irresponsible to treat climate
  change predictions as scaremongering. They
  represent the considered opinions of some of the
  worlds best scientists. We cannot afford to
  ignore them.
• Tony Blair
• March 2001

4
Who thinks climate change is happening?

• Precipitation patterns are changing, with more
  floods and droughts sea level is rising,
  glaciers are melting and ice in the Arctic is
  melting. A significant number of changes are
  occurring, and we cannot explain them by natural
  phenomena - only by human action.
• Robert Watson
• Chairman, Intergovernmental Panel on Climate
  Change, 2000

5
Whos willing to do something about it?

• Kyoto was a dead proposition before we ever
  arrived in Washington. All we did was to make it
  clear that the US would not be bound by it.
• Dick Cheney
• US Vice President
• April 2001

6
Whos willing to do something about it?

• Some claim Kyoto isnt fair because it excludes
  developing countries. But surely we in the
  industrialised world, who have contributed most
  to causing this problem, should be the first to
  contribute to its solution. Is there any
  fairness in the fact that US emissions are ten
  times more per person than those in the
  developing world?
• Romano Prodi
• President, European Commission
• April 2001

7
Is climate change happening?

• Met Office data shows
• global average temperatures have risen by 0.7 C
  over last 80 years
• 4 of the 5 warmest years on record (337 yr
  series) in C England in 1990s
• in SE England average temperatures have risen by
  0.5 C over the past 100 yrs and summer rainfall
  has decreased

8
Is climate change happening?

• There has always been a natural variability in
  climate due to sunspots, volcanic activity,
  meteorites etc
• But natural phenomena account for small part of
  the rise over the last century
• Modelling shows rise can be predicted by adding
  manmade greenhouse gas effects to natural
  phenomena

9
What will the climate become?

• In SE England
• 1995 summers nearly every year
• wet winters 6 times more likely
• dry summers 10 times more likely
• In SW England
• Will become like Bordeaux climate
• In NW England
• Devonian temperatures will become normal
• 10 more rain

10
Mitigate or Adapt?

• Mitigation refers to taking action to reduce
  climate change effects eg by reducing carbon
  dioxide emissions
• Kyoto aims to reduce by about 10
• 70-80 reduction needed to stabilise
• Adaptation refers to actions to reduce the impact
  of climate change effects
• could be technical, economic or social changes

11
UK Property Gross incurred claims
12
Weather related claims
13
What are the effects for insurers?

• a) Coastal storms
• b) Windstorms
• c) River and overland floods
• d) Subsidence
• e) Crime
• f) Fire
• g) Health
• h) Pensions and welfare
• i) Savings and investment

14
What are the effects for insurers?

• a) Coastal Storms
• Sea levels could rise by 54cm (Channel)
• Storm surges can increase sea levels by 3-5m
• Prevailing winds could shift, with consequences
  for coastal defences
• Exposure 4.7 housing in coastal areas
• Power and key industries also coastal
• 1953 inundation caused 350 deaths, 1,200
  defence breaches and 32,000 evacuations

15
What are the effects for insurers?

• a) Coastal Storms
• Sea defence standards will reduce and need
  upgrading
• Planning decisions need to reflect increased
  risk, including impacts of defence failure
• Building design needs to be wind, wave and salt
  proof

16
What are the effects for insurers?

• b) Windstorms
• Average wind speeds could rise, with 30 more
  storms is S England Wales
• Storm tracks will shift north from France
• Doubling of wind speed results in fourfold
  increases in damage levels
• Current costs Windstorm event in 1987 cost 1.2
  bn even though only 10 housing stock affected

17
What are the effects for insurers?

• b) Windstorms
• Roof design and numbers significant factors in
  damage costs
• Continental and vernacular architecture may offer
  lessons
• Demographic changes will also impact
• But 32 of current housing stock pre-1920 so slow
  turnover

18
What are the effects for insurers?

• c) River and overland flooding
• Peak river flows will rise by 10-20, perhaps
  more in NW and Scotland
• 20 increases in river flow halves effectiveness
  of flood defences
• Flooding 4 times more likely in Scotland
• Cost estimate catastrophic flood event 1-2 bn

19
What are the effects for insurers?

• c) River and overland flooding
• More thunderstorms will result in flash flooding
  in drier areas (SE England)
• Storm sewers are designed for current 120 year
  events but return periods will fall sharply
• SUDS and SADS may reduce damage
• Flash floods are less predictable by location

20
What are the effects for insurers?

• d) Subsidence
• Dry summers like 1976 will become more common
• Likely severity will be greater
• Would result in increase shrinking of clay soils
• Increased flash floods could increase undermining
  on sandy soils or soluble rocks
• Current cost 3.25 bn 1989-99

21
What are the effects for insurers?

• e) Crime
• Heat waves may result in crime waves eg
  burglaries or riot
• f) Fire
• Brush and forest fires will increase by 17-28
  for a 1 C temperature rise in S England
• 54 of fires currently outdoor accounting for
  13 of total cost
• Intensity of fires will also increase
• Lightning strikes will rise 40 with 1 C rise

22
What are the effects for insurers?

• g) Health issues
• Food poisoning likely to increase by 10,000 cases
  pa
• Cancer will rise by 5000 cases pa and other UV
  conditions by 2000 cases pa
• Ozone related respiratory problems will increase
  deaths by 2000 cases pa
• Insect and water borne diseases will increase but
  with limited impact

23
What are the effects for insurers?

• h) Pension and welfare implications
• Winter deaths will reduce by 20,000 cases pa
• Hot weather deaths will increase by 2,800 pa
• Could accelerate trends to greater longevity
• Drought and economic and political instability
  will increase immigration (and welfare budget?)
  pressures

24
What are the effects for insurers?

• i) Savings/investment implications
• Higher house repair and retrofit costs could
  reduce personal savings rates
• Greater pension needs may alter preferences for
  certain savings products
• Investment choices should take account of
• services, products and technologies that meet/are
  vulnerable to changed climate needs
• location of assets -most UK oil refineries and
  nuclear power stations vulnerable to rising sea
  levels

25
Risk and Uncertainty

• UKCIP02 scenarios due February 2002
• Risk and Uncertainty in Decision Making
• Regional and Sectoral climate impact studies
• But impacts so great and lead in times so long in
  some areas that precautionary approach needed

26
What action is needed?

• Government
• Precautionary approach in both mitigation and
  adaptation measures
• managing emissions
• planning and building regulations, contingency
  planning, coastal defences etc
• Further research
• Review of precautionary measures in light of
  improved knowledge

27
What action is needed?

• Insurers
• Review of risk assessment processes and levels,
  investment policy and product lines in light of
  current knowledge
• Further research
• Engagement with other influential and affected
  financial services and professions
• Effective lobbying at home and abroad to ensure
  necessary measures taken