Fri 19 Oct 2007
Lloyd’s of London’s 360 Reports on Climate Change and Risk Reports. Lloyd’s reports that the insurance industry should start planning and modeling now for a higher level of losses across the world by the middle of the century as both the severity and frequency of weather events increase. The alternative – waiting until definitive scientific pronouncements on impact at a regional level or likelihood of catastrophic change are available – seems like an increasingly risky strategy.
Excerpt from the Lloyd’s 360 Rapid Climate Change Report:
“Until now, we have tended to think of climate change as a gradual phenomenon which will take place slowly over a long period of hundreds – or perhaps thousands – of years. In turn, this thinking is likely to influence how we forecast and prepare for climate related loss, with the impact expected to be felt evenly over time, and any increase in loss taking place incrementally. In fact, the latest science presented in this report suggests that climate change is likely to bring increasingly dramatic, and possibly rapid, effects at a local level, which differ in their intensity and even in their outcome. In addition, a growing number of potential feedback mechanisms within the climate have the capacity to cause tipping points in the system and speed change further. While we cannot yet determine what the exact impact of climate change will be, the 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.”
With a wealth of new research becoming available recently, the global insurance sector and the wider business community should factor the latest science into its business planning.
- Global warming is not only changing the average climate, but will also make it more erratic which should be of particular concern to the insurance industry.
- As climate change takes hold, insurers and businesses should therefore keep a close watch on future developments, and be prepared to revise their longer term strategies regularly.
- While not all of the increased risks may result in huge losses which significantly damage the capital of the insurance industry, increased unexpected attritional losses could certainly impact financial performance on a regular basis.