Financial turmoil should not eclipse climate risk, say insurers

TradingMarkets.com: Despite a global financial meltdown, climate change still should be considered the top strategic threat to the insurance industry in 2008, according to a new report. While insurance companies are facing short-term cost and profit performance pressure, long-term risk management for climate change should not be overlooked, said Zurich Financial Services Australia in a research report on climate change and insurance.

The world is seeing "an increase" in the frequency and severity of extreme weather events, according to the report. This year, there were devastating snowstorms in China and hurricanes in the United States, with Hurricane Ike likely being the third-costliest hurricane on record. But in spite of the presence of climate-change hazards, the Zurich report said many insurers are "slow or not responding" to the scale of risks and opportunities. Much of the insurance industry faces the "delicate balancing act" of trying to achieve long-term sustainable investment in climate change and at the same time respond to short-term market pressure.

…The world's insurance industry is paid nearly 8% of global gross domestic product to manage risks, said Karl Mallon, director of Climate Risk Pty Ltd. and co-author of the report. "There is already evidence documented in this report of insurers withdrawing cover from high-risk areas, at a time when businesses and homeowners will increasingly need general insurance to deal with mounting climate-change impacts."

…The withdrawal will constitute "a race to bottom for the industry and society," said Mallon. In fact, the insurance industry is facing two storms: the financial turmoil and increasing "vulnerability" to climate-change risks, noted Mallon.

Also, Guy Carpenter's World Catastrophe Reinsurance Market Report for 2008 said debate over climate change has "far-reaching implications" for insurance industry. For instance, Guy Carpenter quoted a study from the Intergovernmental Panel on Climate Change that sea levels are rising by 1.8 mm per year.

"Even if there were prefect causation and definitive statistics on relevant insurance losses, there would be minute changes on a year-on-year basis in insured losses," said the Guy Carpenter report….

Train wreck at Montparnasse Station, Paris, 1895