Climate insurance to top $300 billion

Posted: 14 February 2001

One of the world's largest re-insurance firms, Munich Re, has warned that climate change could increase the global insurance bill from $30 billion a year to $300 billion a year, by 2050. As a result, regions vulnerable to climate change such as low lying islands and countries could become insurance no-go zones as weather-related insurance claims rise.

"Climatic changes could trigger worldwide losses totalling many hundreds of billions of dollars per year," warns Dr Gerhard Berz, head of Munich Re's Geoscience Research Group. "The burden of claims has already taken on dramatic dimensions," he said, adding that "before 1987 only hurricane Alicia in Texas in 1983 cost the insurance industry more than $1.billion." Since then 29 have cost the same.

According to Dr Berz's report in Our Planet, losses due to more frequent tropical cyclones, loss of land from sea level rise and damage to fishing stocks, agriculture and water supplies, could annually cost an estimated US$304.2 billion by 2050. The report's estimates are based on predictions by the Intergovernmental Panel on Climate Change (IPCC) that pre-industrial carbon dioxide levels in the atmosphere will double by 2050.

While most countries can expect losses "to range from a few tenths of a per cent to a few per cent of their gross domestic product," said Dr Berz, low lying island states, such as the Maldives, the Marshall Islands and the Federated States of Micronesia "could face losses far exceeding 10 per cent" of their GDP, as a result of rising sea level and flooding.

"There is reason to fear that climatic change in nearly all regions of the Earth will lead to natural catastrophes of hitherto unknown force and frequency," said Dr Berz, concerned about its effect on insurance industry. "Assessing these developments could jeopardise the future of the entire [insurance] industry in some of the regions."

Natural catastrophes

The report predicts that by 2050 some of the biggest global losses will be in the following areas:

  • The water industry worldwide will face $47 billion in extra costs
  • ecosystem losses, including mangrove swamps, coral reefs and coastal lagoons, could run at over $70 billion. These areas are vital nurseries and habitats for fish and other marine life, providing a source of protein for many poor communities, as well as livelihoods.
  • Agriculture and forestry could lose up to $42 billion worldwide as a result of droughts, floods and fires.
  • Natural disasters, including more frequent cyclones and hurricanes, could add a further $3 billion to the global insurance bill.

    Regionally, the burden of loss in Europe will result from higher levels of mortality and health costs, which are estimated at $21.9 billion per year by 2050, while water management may cost the EU an extra $14 billion by that date. In the United States, the extra costs of health-related measures and more intensive water management may reach nearly $30 billion a year by 2050. Losses in agricultural production among countries of former Soviet Union are estimated at $6 billion a year by 2050, while China is set to lose some $7.8 billion in the same sector.

    Klaus Töpfer, Executive Director of the UN Environment Program (UNEP) said, "The time to act is now. We must all work to reduce emissions of greenhouse gases. But mitigation is not enough. The world has already signed up to a certain level of human-induced climate change, as a result of over a century of industrial emissions primarily from the developed world. We must help vulnerable areas of the world, primarily in developing countries, to adapt to the consequences of global warming."

    UNEP scientists are developing an early warning system based on a "vulnerability index" of communities more prone to natural disasters to reduce the loss of life as a result of climate-related disasters.

  • The sixth largest insurance company in the world has also warned that damage due to climate change could bankrupt the world by 2065. Dr Andrew Dlugolekci, Director of General Insurance Development at CGNU, told delegates attending the international climate change summit in The Hague last November (2000) that the rate of damage caused by changing weather will exceed the world's wealth. "Property damage is rising very rapidly, at something like 10 per cent a year," he warned, and at this rate of growth it would exceed Gross Domestic Product by 2065. He added that the insurance industry was in danger of "running out of money," to deal with climate change disasters.

    Source: Our Planet (Volume 11, Number 3, 2001), the magazine of the United Nations Environment Programme.