Global climate change will continue taxing the insurance and reinsurance industry landscape through the end of the century—especially from losses caused by sea level rise, inland flooding and drought.

“In order to adapt to climate change and the changing risk landscape, it is necessary to cut through [the] noise and focus on objective decisions to mitigate both the financial and social risks associated with climate change,” says Johnny Chan, director of the Guy Carpenter Asia-Pacific Climate Impact Centre.

According to a recent Guy Carpenter climate change report, which is based on data from the Intergovernmental Panel on Climate Change (IPCC), economic losses from climate catastrophes increased from $75.5 billion in the 1960s to $660 billion in the 1990s, with a “significant increase in the values of exposure” as populations grow and coastlines urbanize.

Additionally, global climate models project an estimated two-to-four degree Celsius increase in mean Earth temperature by end of the century.

“This may seem like a relatively small increase, but the impact of rising temperatures, even by a few degrees, could cause a shift in weather patterns, with considerable impacts worldwide,” said James Waller, research meteorologist for GC Analytics.

Coastal flooding from sea level rise is the most serious climate-related threat, says Guy Carpenter, with a one-to-two foot expected rise by the end of this century compounding the severity of cyclones, tsunamis and hurricanes.

This is especially worrying in a future in which the Insurance Information Institute (I.I.I.) predicts events like Superstorm Sandy, which hit the insurance industry with $18.7 billion in damages, will occur more commonly. Furthermore, the world will experience at least 10 feet of sea level rise by midcentury even if aggressive carbon-emissions cuts are implemented immediately, according to Climate Central research.

In order to mitigate losses, Guy Carpenter suggests improving building codes for coastal flood resilience in vulnerable areas, introducing coastal defense structures such as dykes and seawalls, and shifting new developments away from coastlines.

Inland flooding from increased precipitation, Guy Carpenter's second-named climate change threat, will tax aging storm water management systems that are poorly equipped to handle major water influx and open the floodgates to urban flooding. Adaption to this threat must include attention to storm water management infrastructure for accommodating larger volumes of rainwater, upgrades to civil infrastructure codes and standards, and implementing rainwater catchment basins.

In contrast, drought follows third on the report's list of top climate related threats. By the end of the century, global climate models indicate the number of days between rainstorms will increase for areas including Southern Australia, Southeast Asia and India, Southern Europe, Central America and Western North America as areas of the Colorado Basin in the U.S. and in the Himalayan watersheds already face water shortages. Meanwhile, urban areas put themselves at risk as expanding skylines reduce groundwater recharge zones.

Drought will lead to decreased soil moisture in the U.S. and Europe, creating deserts in areas now used for agriculture and spurring blazes: over the past 30 years, the wildfire season in the western U.S. has increased by nearly 80 days.

The insurance industry will have to promote new building codes, sustainable land use strategies and rainwater-catching technology to keep up with the droughts, floods and fires of the future.

“Some important avenues include advocating for construction to code, and better yet to standards advocated by FEMA and the Institute for Business and Home Safety (IBHS), especially in coastal areas subject to the projected sea level rise threat,” says Waller, including long-term review and upgrading of local flood control infrastructure in coastal and inland areas, land use measures that dissuade development in coastal areas, and catastrophe models that explicitly account for a variable amount of sea level increase over a number of years.

Special Reports /

Guy Carpenter: Cut Through Noise and Make Plans to Mitigate Climate Change

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