The Climate, It Is A-Changin'

Insurers must "adapt or bust" when it comes to facing the changing climate's effect on the insurance industry, says a new Lloyd's of London report.

Last year cost the industry $83 billion in catastrophe claims, $65 billion of which resulted from hurricanes Katrina, Rita, and Wilma. The report, "Climate Change: Adapt or Bust," suggests that insurers could face even higher claims from an increasing number of natural disasters in the near future, which would be caused by climate change.

According to the report, scientific evidence shows that global temperature, sea levels, and rainfall are rising faster than previously thought. Rising sea temperatures in the Gulf of Mexico indicate increased windstorm activity and hurricane exposure. It also says if the industry wants to survive, it must adapt its responses to these trends sooner rather than later.

Lloyd's suggests that the industry stay ahead of the game by taking a new approach to underwriting: updating pricing and capital allocation models on a regular basis to reflect the latest scientific evidence. It also implies that insurers have relied too heavily on long term-historical data in the past, and should now trust today's forecasting tools for weather-related risk predictions.

More information is available at www.lloyds.com.