The changing climate presents a new set of risks for insurers, one of which has just partnered with a leading environmental organisation to examine these potential impacts. Jon Guy examines developments


The growing threat of climate change is recognised by science, government and business as a major challenge for the future. Any remaining voices of dissent are becoming fewer and further in between.

Understanding climate change and its causes, as well as the current and future impact is vital for the insurance market if it is to accurately rate the risks it is, and will later, be asked to assume. And in that respect the insurance industry has not been found wanting. The industry has always sought to raise its profile with significant sponsorship. (Rare is the sporting event without insurance company representation.) And the issue at the top of today’s agenda is the climate change challenge. The market’s pecuniary interest in the outcome is just one of the drivers.

Growing evidence of the changes in the world’s weather patterns and the fact that the past decade has seen some of the most destructive north Atlantic hurricanes in history is seen as a core indicator that weather patterns are getting more extreme and intense. Of the more high profile science/education/ insurance collaborations is the Benfield Hazard Research Centre at University College London (UCL).

Professor Bill McGuire, director of the Benfield UCL Hazard Research Centre, is one of the most high profile experts which have been tasked with answering the questions thrown up by climate change and says at present business and government is not delivering the necessary changes which will put the brake on the lurch towards the tipping point for irreversible climate change.

Scientists believed the first major landmark which will indicate the world’s climate is altering will be an average temperature increase of 2°C. Such an increase will deliver a significant change in the world’s weather patterns, although the key to any hopes of arresting the slide will depend on how advanced efforts are when we hit the new average temperature mark.

With the insurance industry always looking to learn the lessons of the past the scientific community are doing the same and a new study has gone back 14 million years, to a time when the world’s carbon levels were on a par with today’s and assess the conditions. Professor McGuire says the planet was a very different place: “What the study has found is that the average temperatures were 3-6°C higher than today and sea levels were 25 to 40 metres higher, so it shows what the impact could be. The issue is that at present we are looking at a 1.3-1.4°C rise in global temperatures and that gets us very close to the 2°C figure that is the first of the major climate change danger triggers.

“If we reach the 2°C rise, but have already put in place systems that have significantly reduced emissions to the point where the climate is already cooling, then we can limit the impact,” he explains. “However, if we continue as we are, we will hit the 2°C mark and it will be hard to halt the rising temperatures and [we could be] heading for 4 and 6°C increases, which would have a major impact on the planet.”

He explains the figures are for an average global temperature rise but that the impact of the increase will be felt more keenly in some parts of the globe than others, with the polar ice caps looking particularly vulnerable. “The Copenhagen summit was a disaster and although there were a number of countries that agreed to a number of steps to reduce emissions, we have no evidence of any action since,” he warns.

TACKLING THE ISSUE

Insurer RSA is linking with charity the World Wildlife Fund (WWF) using technology to wrestle with the issues of the growing drive for the use of wind farms to create sustainable energy generation and the impact of the continued hunt for fossil fuels. RSA is enabling the charity to have access to its Geographical Information Systems (GIS) which has long been used by insurers to examine, understand and mitigate the risks to clients.

However, within the marine industry, long renowned in some areas for its reluctance to adopt sophisticated modelling solutions, the use of GIS has been far less common place although the benefits are clear, says RSA. The current project aims to demonstrate how that latest GIS systems could predict the spread of oil spills, minimising their environmental damage.

While that was the initial aim of the project it has become quickly apparent there are conservation benefits. It has resulted in the WWF and RSA using GIS to map the Baltic Sea to highlight how shipping lanes and planned wind energy arrays will impact on the sea’s abundant marine life and the threats that such developments may pose to the environment.

RSA’s James Wallace said the project, which started as a collaboration over planning issues surrounding urban drainage and flood threats, has turned into the WWF’s biggest corporate partnership. “We have worked closely with the charity and the partnership is working well,” he explains. “What we found was when we got a group of WWF’s strategists and our underwriters together there was a significant amount of crossover and we have been working with them to look at how insured risk and environmental risk combine. “Insurers have not always played their full part in the discussions over climate change in the public domain. It has usually always been under the radar. “There is an insurance group within the United Nation’s climate change initiatives and the industry is working hard to see what it will mean for the future and whether we are really prepared for it,” Wallace adds.

The Holy Grail is really the discovery of a way in which greenhouse gas emissions for example could be quantified into a matrix which would give the market a way to measure the effect a certain level of emissions is having on the world’s temperature and eco-system. Should such a matrix be created it would deliver the ability for governments to penalise the polluters. Until that time insurers are throwing their weight behind the efforts to understand what is happening, its cause and how it can be tackled.

For the past two years underwriter Catlin has sponsored the Catlin Arctic Survey. Their head of communications, Jim Burke, says: “To underwrite a risk you have to be in possession of the facts. We have very little in the way of facts as to what will happen in the next 20, 30 or 40 years. “The Arctic is seen as a good barometer of the impact that global warming will have on the planet, which is why we have been keen to sponsor the survey for the past two years.

“It is our way of looking at the research needed and to help to provide a small amount of information to the debate.” Burke says the aim was to establish an idea of what might happen to the global climate and weather patterns in the decades to come so underwriters can identify the changing risks in the areas where they operate.

“There may well be rationale to say you do not want to be looking to underwrite flood cover in low-lying areas in parts of the world 50 years hence, but at the moment what the insurance industry can do, and is doing, is working to fund the information-gathering that will give the scientific, government and business communities the facts on the impact.

“We are not here to comment on what governments and firms should be doing, but we need to play our role in understanding the impact and the risks that are involved.”

Burke says the (re)insurance market had been spending a great deal of time and money on internal research departments: “While insurers can reduce their carbon footprints, the underwriting process will only be adapted when the facts are established and the risks can be quantified.”

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