What is climate change?
Climate change refers to the gradual long term change in the Earth’s average temperature and weather conditions. Industrialisation combined with a growing population has resulted in rising levels of CO₂ and other greenhouse gas emissions which cause global warming. If global society follows our current emissions trajectory then we are likely to see an increase in global average temperatures of 4˚C by 2100, with a one-in-ten chance of that increase being as high as 6˚C. In both cases these temperature increases would lead to catastrophic, irreversible shifts in the Earth’s climate. Tropical storms, flooding and other extreme weather events such as El Nino will all occur more frequently and at a higher intensity. Climate change is a global issue of a scale, severity, and potential irrevocability that society has never before experienced. A paper published in the journal “Nature” in June 2015 found that:
“The climate is changing: we have a new normal. The environment in which all weather events occur is not what it used to be. All storms, without exception, are different. Even if most of them look just like the ones we used to have, they are not the same.”
This sobering conclusion points to our new reality; this is not another cyclical period of temperature change but a future of constantly evolving and increasingly challenging climactic conditions.
What is/will be the impact of Climate Change on insurers?
The risks that climate change presents for the insurance and savings sector are twofold:
Firstly, increased frequency and severity of major weather events mean that climate change has increased the risks and costs of insurance. In the UK, five of the top six wettest years on record have happened since 2000 and rainfall events which would previously have occurred, on average, only once in a century are now likely to happen once every eighty years. Today, two million homes in England are at risk of river or coastal flooding, with an additional 2.4 million homes at risk of surface water flooding. These statistics are emblematic of the wider global insurance industry’s exposure to growing annual weather-related losses, which have increased to $200bn (£133bn) a year, a fourfold increase in 30 years.
Secondly, the UK insurance sector is responsible for investments of £1.9 trillion, equivalent to 25% of the UK’s net total worth. These are investments for the future, much of it used to provide for people’s retirement. Short-term gains will ultimately prove insignificant if climate change is ignored. As research by the Economist Intelligence Unit shows, when considered from the long-term point of view of a government, a rise in temperature of 6C could, by 2100, result in losses for global assets of $43trn – or 30% of the world’s entire stock of managed assets. As insurers, safeguarding these investments and the future of our customers is paramount and requires a response to the risks of climate change.
What is the industry doing to respond?
The ABI and our members have a wide ranging series of initiatives underway focusing on helping society to both mitigate and adapt to climate change. Most prominently, with the UN climate summit, COP21, starting in Paris in December 2015 the ABI has produced the below video to highlight the challenges posed to insurers and the ability of the insurance sector to help mitigate climate change:
Further information on the climate focused work of the ABI and some our members is available below.