18th April 2007
The insurance industry should start planning now for potentially higher losses as both the severity and frequency of weather events may increase, according to Lloyd’s latest research on climate change.
Climate change has previously been seen as a gradual phenomenon which will take place slowly over a long period of hundreds or even thousands of years. In fact, the latest science presented in Lloyd’s report, ‘Rapid Climate Change’, suggests that climate change is likely to bring increasingly dramatic and possibly rapid effects which will differ in intensity and outcome.
Trevor Maynard, Manager of Emerging Risks at Lloyd’s, says that although global models on the climate differ at present, it is important to share the information with the business community. “Not having all the answers must not stop business preparing for a range of possible outcomes and planning for a variety of contingencies, even if this leads to preparing for risks that never emerge,” says Maynard.
“More uncertainty means more risk, and calls for a fresh and flexible approach to management of climate related risk.”
Reflecting on the research findings, Maynard adds: “Evidence is increasing to suggest we will see tangible change within our lifetime, and insurers and business should begin to consider and prepare for the range of outcomes now.”
“We are grateful to the scientists from ‘Climate Change Risk Management’ who have assisted with the writing of this paper. In such a complicated subject we feel it is crucial to work directly with those having such a depth of understanding.”
The report was commissioned by Lloyd’s to assess the possibilities of rapid climate change in four areas of particular relevance to the insurance industry; sea levels, melting icecaps, flood and drought.
Professor David Smith of Oxford University believes that over the coming decades global sea levels could rise “up to ten times faster” than a century ago, putting coastal communities at increased risk. In particular, Professor Smith argues that if global warming modifies Gulf Stream currents, Northern European coastal sea levels could rise by up to a metre over a few decades. Also increased storminess, with a greater frequency of storm surges, could pose a threat to coastal communities throughout the world, while higher sea levels could increase the impact of tsunamis in the Asia-Pacific.
Large portions of ice sheets will melt in this century, speeding sea level rise further and increasing uncertainty for coastal communities about the speed and impact of climate change, according to Dr Stefan Harrison at Exeter University.
He argues that Greenland’s ice sheet, previously thought to be stable, is now showing “signs of rapid melt”, and the resulting injections of cold freshwater into the North Atlantic could impact upon the climate of Europe.
At the other end of the earth, the Western Antarctic Ice Sheet is more prone to rapid collapse andis losing mass. Its lack of stability is regarded as a key issue in the debate concerning the nature and occurrence of ‘dangerous climate change’.
Floods currently account for half of all deaths caused by natural disasters, but the frequency and magnitude of flooding is set to increase. Some scientific studies suggest annual flood damage in England and Wales could reach ten times today’s level. Fuelled by higher winter precipitation in temperate areas and changes to freezing patterns, lowland areas will experience greater flooding while in mountainous areas, flood risk will increase in winter but reduce in spring, the report states.
Dr Matt Wilson, Exeter University, suggests that despite an overall trend towards drier summers, there is likely to be more thunderstorms and a greater frequency of destructive flash floods. There is considerable, though disputed, evidence that tropical cyclones are becoming more intensive in line with higher sea temperatures, increasing coastal flooding risk. The impact of coastal flooding will grow due to increasing coastal populations and greater storm surge.
Dr Wilson has called on society to improve its flood management ability, and the insurance industry to “factor the upward trends into its modeling”.
In his research, Oxford University’s Dr Richard Washington says climate change is shifting the patterns of droughts. Regions such as Southern Africa that are susceptible to drought during El Nino [major warming of the equatorial waters in the Pacific Ocean] will become “more vulnerable to drought” by the middle of the century.
Some climate models predict an almost permanent El Nino before the end of the century, with such an event leading to the drying of the Amazon and release of significant amounts of extra carbon dioxide into the atmosphere, leading to further warming.
From Lloyds News and Features