Climate change in central Europe – new approach needed?

by Artemis on June 11, 2008

Munich Re have released a new publication which is well worth reading titled ‘Climate Change in Central Europe‘.

It details the increasing incidence of weather related natural catastrophes in central Europe and says the evidence is mounting that this is due to climate change. Loss potential in Europe from these events is growing and as we all know European windstorms are a peril which is increasingly featuring in catastrophe bond and securitization deals as reinsurers seek capital market back up for these risks.

Flood risks are another area for consideration; occurrence is growing both due to climate change but also due to development in central European countries, the increasing concrete and tarmac approach to development means natural watersheds and run offs are being changed and increasing the risks of severe flooding. I’m sure it won’t be long until these are seen transferred to the capital markets in increasing numbers.

Hail is another interesting area in Europe. It’s always been a major loss event in areas such as Switzerland and there have been interesting insurance tools available such as the Winterthur policies which paid out based on a certain number of cars receiving hail damage during a storm. Perhaps we’ll see new efforts to create trigger and index linked policies which could be sold over the counter?

Of course there is also an increase in take up of weather derivatives in Europe but they still have yet to penetrate to the extent that they have in the U.S.

So is a new approach needed? With the increasing incidence of weather related hazards in these areas it seems certain that alternative risk transfer techniques will become more common. What we’d really like to see are new and innovative products emerging which can meet the challenges being faced by corporations and insurers alike as they come to terms with climate change. All of these risks are measurable and indexable and it seems to us that this is a perfect opportunity to try some new approaches to risk management to meet these new and increasing hazards.

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