BY MARK E. RUQUET
The science of climate change might remain controversial among skeptics, but within the insurance industry there is a growing consensus that the risks are real, and that carriers must deal with the growing exposures as well as seize the opportunities the problem presents.
In a report released by Ernst and Young—“Strategic Business Risk: Insurance 2008”—the consulting firm reviewed the top-10 strategic risks insurers face, placing climate change atop the list and calling it “a long-term issue with broad-reaching implications that will significantly impact the industry.”
Changes in weather patterns caused by climate change “will bring about a fundamental shift in the underlying probability of insured loss (by windstorm or flood) and require insurers to scrutinize their insurability criteria for certain risks,” the report concluded.
Climate change will also affect carrier pricing and reserving policies, as well as raise solvency and corporate viability issues, the report pointed out.
Windstorms, flooding and heat waves produced by global warming can lead to “broader and more gradual consequences” the report warned—increasing mortality and health problems, spreading environmental litigation, raising political risk linked to conflicts for control of resources, and also affecting the capital markets.
“These implications could result in correlations across geographies and insurance classes—perhaps sooner than expected,” according to the report.
“One of the main ways in which human populations currently cope with the risks of extreme weather-related hazards…is through insurance,” according to a report released by modeler Risk Management Solutions—“The Role of Insurers in Promoting Adaptation to the Impacts of Climate Change.”
Pointing out the scientific evidence that climate change exists, it cites actions insurers are taking to deal with the growing reality and the challenges they face. The report also notes some of the differences between the United Kingdom and Europe versus the United States in dealing with the exposure issues climate change presents.
Bob Ward, director of global sciences network for RMS and one of the authors of the report, said his purpose was to convey the message to insurers that now is an opportunity to assume a leadership role in identifying the exposure, working to control those risks, and taking a front seat in the general debate over climate change and its potential impact on people and property.
He noted that from a political stand-point, it is easier to talk about the issue in the United Kingdom than in the United States, where global warming remains a hotbed of controversy.