Risk transfer solutions at the ready; climate change to increase weather losses by 30%

by Artemis on November 2, 2009

The Association of British Insurers will be revealing the findings of its latest report into climate change this week at their climate change event. The study which looks into the impact of rising temperatures caused by the changing global climate will show that a four degree rise in global temperatures (something they say could happen by 2060) could result in huge rises in weather insurance claims.

The cost from inland flooding in the UK could rise by 30% they say while the cost from severe windstorms affecting the UK could rise by 14% should temperatures rise by that much (the Telegraph has more on this).

Frightening figures for homeowners and insurers alike. If the UK sees those increases you can bet that weather events in the rest of the world are going to become more costly in line with it. That means insurers and reinsurers are going to need to have more capital available to pay claims and some of that will definitely need to come from price rises which will be passed on to the insured. Some of it will likely come from the capital markets through risk transfer solutions.

The alternative risk transfer, insurance-linked security and weather risk management markets are going to be looked to for leadership in this area, as traditional risk financing solutions fail to provide the coverage and financial security that climate change risks demand. It is up to the market to demonstrate its effectiveness at providing financial solutions to complicated, high risk weather and disaster events through innovative forms of insurance. The solutions available to us today are probably not going to be sufficient to meet the demands of a four degree rise in temperatures.

We’ll provide links to the report once it is released.

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