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Higher temperatures could drive greater Euro windstorm losses: ABI, AIR


Analysis by catastrophe risk modeller AIR Worldwide for the Association of British Insurers (ABI) underlines the potential for increasingly costly European windstorms, driven by climate change and rising temperatures.

The analysis looks at the UK, and claims that temperature increases of just a small number of degrees is expected to drive higher insurance and reinsurance industry losses from storms.

Utilising temperature changes that fall within long-term projections of climate change experts, the report reveals that insured losses for high winds could be 11%, 23%, or even as much as 25% higher nationwide.

Percentage changes in regional average annual losses relative to the stochastic baseline

Percentage changes in regional average annual losses relative to the stochastic baseline (from the study)

Matt Cullen, Head of Strategy at the ABI, commented; “In the midst of all the other global uncertainties, it is important we don’t overlook the inevitable long-term impacts of climate change. Concerns about global warming often focus on rising water levels and the threat of flooding but this new research makes it clear the impact of other meteorological events such as high winds must not be overlooked.

“Severe storms result in claims costing billions of pounds. The likelihood of these claims increasing in the future is something the insurance industry, and society, need to start preparing for now. Planners and builders should be aware of the need for more wind-resistant construction in specific areas of the country if claims are to be kept to a minimum and residents spared the distress and expense of higher levels of wind damage.”

As of April 13th, 2017, insurance and reinsurance industry losses due to major European windstorms in the 2016/2017 winter season had reached €639 million (US$680 million), according to PERILS AG. And while this figure doesn’t tell the whole story, the major events covered by PERILS are the events most likely to impact reinsurance capacity.

And with the potential for higher insured and economic losses in the UK alone from more intense, frequent and ultimately more costly wind storms, suggests that annual European windstorm insured losses could be on the rise as weather systems and temperatures react to climate change projections.

Dr. Peter Sousounis, Assistant Vice President and Director of Meteorology, AIR Worldwide, added; “The latest findings from the climate change science community show that just a few degrees of global warming could potentially yield significant increases in the frequency and intensity of extratropical wind storms across the UK by the middle of this century and will likely continue into the next century.

“This report illustrates that there will likely be increasingly large impacts from an insured loss perspective. It can also be a useful tool for the engineering community, urban planners, and the insurance industry to consider the potential impacts of climate change as they look toward the next few decades from a public safety as well as a business perspective.”

The ABI explains that when examined over the long-term, flooding and windstorms tend to drive similar levels of claims costs for the insurance and reinsurance industry. However, floods tend to drive fewer but more expensive claims, while wind storms drive more frequent, less expansive claims.

It’s important to remember that this study just looks at the potential for higher costs from windstorms as a result of higher temperatures and climate change impacts in just the UK, suggesting the potential for higher losses from European windstorms could be even greater in other parts of Europe.

European windstorm risks remain the major component of many property catastrophe reinsurance programs in Europe, hence are widely underwritten in the ILS markets as well. However, pricing on many of these programs has reached such low levels that ILS players are in some case pulling back, leaving the lions share of Euro windstorm risks to traditional reinsurers instead.

As a result, catastrophe bonds exposed to European windstorm risks are now few and far between, and currently it is the traditional reinsurance market risking the highest exposure to any increase in windstorm losses due to the potential for rising temperatures.

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