High financial risk of climate change

The potential risks were highlighted in an Association of British Insurers (ABI) report, published to coincide with its climate change conference held in London on Wednesday (29 June).

The study, entitled 'Financial Risks of Climate Change' claimed that many of the projected increased costs arising from climate change could be avoided by "taking action today".

For example, a reduction in carbon could save up to 80% of the predicted extra costs as would continuing to improve coastal defences and flood protection inland, as well as change building codes to ensure more weather resilient properties.

Nick Starling, the ABI's director of general insurance, said: "Managing the effects of climate change is a key issue for the 21st century. Insurance is a messenger of change for future risks, as well as a provider of financial protection against the unforeseen.

"Governments now have a chance to make rational choices for the future before it is too late. Making the right decisions based on first class assessment of the financial costs of climate change will ensure lower costs for the public in future."

Global challenge

According to the report if no action was taken then scenarios modelled by the Intergovernmental Panel on Climate Change could see insured damage in a severe hurricane season in the USA rise by 75% to £62billion by 2080. This would be the equivalent of almost three Hurricane Andrews - the costliest single weather event recorded, which occurred in 1992.

Also the costs of Japanese typhoons could increase by around two-thirds to reach £19 billion. The increase would be double the cost of typhoon damage in 2004, which was the costliest in the last 100 years.

The report added that financial costs of flooding would rise in both the UK and the rest of Europe, increasing the annual flood bill by up to £62 billion across the continent.

It warned that insurance markets could "become more volatile" with the capital needed by insurers to cover severe storms could rising by £43 billion. However, in the UK, effective flood management could save 80% of the costs of flood damage.

Role to play

Speaking at the ABI event, Environment Secretary Margaret Beckett said she welcomed the ABI's report, as the "insurance sector has a particular role to play, by calculating and communicating climate risks."

"And because insurance is a global business, this will bring the global nature of the climate change challenge right on to our doorsteps," she added.

Mrs Beckett went on to say that she hoped next week's G8 summit at Gleneagles in Scotland would set the stage for a more concerted global effort to tackle climate change.

"The Prime Minister's aims for Gleneagles are to reach agreement on the urgency of the challenge on an Action Plan with a package of practical measures and a new dialogue between the leaders of the G8 and other interested countries with significant energy needs on climate change, clean energy and sustainable development, to complement the existing UN process. It is an ambitious package.''