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Calm before the storm? Losses in the UK are also examined on a regional level
29% and insured wind losses by 24% proxy for increases in the number of premiums could increase by around 37%
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the insured inland flood 100-year loss insured properties resulting from across the UK if a southward shift in
could rise by 30% to £5.4B and the 200- population growth and increases in storm tracks is assumed
year loss could rise by 32% to £7.9B. the total sums insured resulting from
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the typhoon-induced flood and wind
Regional variations range from less than increased wealth. components of insurance premiums could
10% to 39% for the 100-year loss, and Assuming a 4°C increase in temperature increase by around 48% across China
from less than 10% to 51% for the 200- and ten years of GDP growth at 2.5%, assuming a global temperature rise of 4°C
year loss. The regional response for insured 100-year Great Britain flood losses
Wales, for example, indicates that the could rise by 38% compared with a Insurance capital
insured flood 100-year loss could increase possible rise of 30% if GDP growth were Assuming a global temperature rise of 4°C,
by 39% not taken into account. Assuming a 4°C a further £1.9B would need to be added to
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the wind-related insured loss from winter increase in temperature and ten years of the £5.9B capital currently required to
season windstorms in the UK occurring GDP growth at 6%, insured 100-year cover insured inland flood losses in
once every 100 years could rise by 14% China typhoon losses could rise by 16% Great Britain.
to £7.3B, and the loss occurring once compared with a possible rise of 9% if Assuming a southward shift in storm
every 200 years could rise by 12% to GDP growth were not taken into account. tracks, a further £1B would need to be
£9.7B. Regional variations range from In order to estimate how insurance added to the £8.6B capital currently
below 10% to 16% for the 100-year loss pricing could be impacted by climate required to cover insured wind losses in
and below 10% to 17% for the 200-year change, a typical loss cost pricing algorithm the UK.
loss. For the North-west, for example, was applied to the modelled average annual In addition to increasing prices and
the 100-year loss due to windstorms losses. The implications for pricing based holding more capital, insurers may also
could increase by 16%; the 200-year loss on the modelled climate scenarios are as reduce capacity in response to increased
for London could increase by 17% follows: risks arising from climate change. Similarly,
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the inland flood component of insurance where the price of insurance is not set
Economic growth premiums could increase by around 21% appropriately or insurers do not hold
A conservative long-run estimate of annual across Great Britain if a global sufficient capital, a reduction in the
GDP growth for the UK (based on annual temperature rise of 4°C is assumed availability of insurance is likely to be
real growth of 2.5%) could be adopted as a
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the wind component of insurance the result.
SB FutureProof ❘ April 2010 13
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