12-13 SBRISK0410 ABI REPORT.qxp 17/3/10 1:02 pm Page 12
CORPORATE RISK
Insurance
NATURAL
HAZARDS
Inland flooding, typhoons, winter windstorms... a groundbreaking study that used
state-of-the-art techniques and expert knowledge has coupled climate and
insurance catastrophe models to examine the financial implications of climate
change. John Haven reports on some key analysis for insurers
A
verage annual insured flood losses scenario of 4% annually reduced global 1% probability of occurring in any given
in Great Britain could rise by 14% emissions starting in 2016 would keep the year; that is, it is the loss that can be
to £633M assuming a global warming close to 2°C, even beyond 2100. expected to occur or be exceeded on
temperature rise of 4°C. If certain feedbacks in the climate system average once every 100 years
That is just one of the key findings are strong, 2°C warming could be reached
■
the 200-year loss: the 200-year loss has a
thrown up by the latest analysis from the earlier, perhaps as soon as 2030. However, 0.5% probability of occurring in any
Association of British Insurers (ABI) the benefits of mitigation are still clear. In given year; that is, it is the loss that can be
which has examined the financial risks of the CCC scenario, the probability of expected to occur or be exceeded on
climate change, using climate models and exceeding 4°C is much smaller than in the average once every 200 years.
insurance catastrophe risk models. IPCC’s Special Report on Emissions
Produced by AIR Worldwide Corp and Scenarios (SRES) scenarios. In the worst Results
the UK Met Office, a new study makes case considered, the SRES A1FI scenario, Average annual losses from the two
several groundbreaking advances in the the best estimate is that 4°C warming dominant natural hazards in the UK
area of climate impact assessment by using would be reached in the 2070s, or as early (inland flooding and windstorm) could
state-of-the-art modelling techniques as 2060 if feedbacks are strong, with increase significantly with globally rising
combined with expert knowledge in the further warming thereafter. Present temperatures and changes in storm tracks
fields of climate, meteorology, hydrology understanding suggests that such strong as specified by the Met Office. In respect of
and actuarial science. The study couples feedbacks are unlikely. the more extreme events – namely, losses
climate models with insurance catastrophe To assess the financial impact of climate occurring on average once every 100 or 200
models to examine the financial change on the selected perils and regions, years – rising temperatures could bring
implications of climate change through the AIR Worldwide applied the climate about significant changes to the risk
effects of global temperature increases of 2, scenarios provided by the Met Office to its landscape.
4 and 6°C on precipitation-induced floods, catastrophe models for Great Britain Losses in the UK are also examined on a
windstorms and typhoons. floods and UK extratropical cyclones. regional level, since even a uniform change
In particular, the study assesses the The study uses three key metrics to in precipitation and/or wind can produce a
potential influence of two dominant measure the financial impacts. These are: non-uniform response in the distribution
natural hazards in the UK – inland
■
average annual loss (AAL): AAL refers to of wind or flood risk.
flooding and winter windstorms. the aggregation of losses that can be Focusing solely on the impact of climate
expected to occur per year, on average, change, the impacts values on the three key
Approach over a period of many years financial metrics are as follows:
The approach taken to define climate
■
the 100-year loss: the 100-year loss has a
■
average annual insured losses from inland
change impacts allows the timing of the flooding in Great Britain could rise by
change to be removed from the discussion. 14% to £633M and average annual
Nevertheless, it is informative to know
approximately when various levels of
global warming might be reached. As a best
estimate, 2°C of global warming would be
‘
In respect of the more
insured UK wind losses could rise by
extreme events, rising
25% to £827M. At the regional level,
temperatures could bring
increases range from less than 10% to
29% for inland flood losses and from
reached in the 2040s if any of the IPCC’s
about significant changes to
17% to 29% for insured wind losses. In
main scenarios are followed. The UK’s the South-west, for example, the average
Committee on Climate Change (CCC)
12 April 2010 ❘ SB FutureProof
’
the risk landscape annual insured flood losses could rise by
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