Climate change raising insurance premiums

ABC News (Australia): Collapsed roofs, smashed windscreens, and sodden carpets are just a few of the things insurers fork out money for after a storm … The more they pay out, the more we pay them in premiums. The insurer Suncorp Metway yesterday announced that three separate extreme weather events since July had cost the company between $230 and $260 million.

Suncorp's chief executive is John Mulcahy. "In July we saw some storms in New Zealand, which accounted for approximately $20 million, then there was the Lismore storm in October, where the cost to the group was approximately $60 million," he said. "When you add those two events to the Sydney event [severe storms], then you can see that the cost of the group is in the range of $230 to $260 million."

Earlier this week, Suncorp's closest rival, Insurance Australia Group, blamed bad weather when it slashed its profit forecasts by $150 million. Mr Mulcahy says the cost of insurance premiums will have to rise to recoup the losses. "There's no doubt that prices will increase - I think that will probably escalate even further now that you'll see more price increases," he said.

Dr Penny Whetton from the Centre for Australian Weather and Climate Research says the weather is only expected to get worse as greenhouse gas emissions rise. "As the atmosphere warms up and can hold more moisture, heavy downfalls, when they occur, have the likelihood of being more intense, so that increases the risk of flash flooding events," she said. It is thought global warming may also ramp up the intensity of tropical cyclones and hail storms.

Dr Whetton says it is difficult to accurately predict the intensity of future storms. "The main way that we can predict the future changes in climate due to the enhanced greenhouse effect are the results that come from our global climate models," she said. "But they produce information which is fairly broadscale, like hundreds of kilometres between the points where we have information, and severe weather can be much more local than that. "So, we actually have to use more indirect techniques to interpret what the climate models are saying to be able to say something about extreme weather events."

Insurance companies are running their own set of figures, but just how much extreme weather events will push up the premiums is unclear, even to the insurers.

The banking and insurance analyst at Commsec, Carlos Castillo, says the unpredictable weather conditions are making it difficult for insurers to plan for catastrophes. "The insurers definitely point to the fact that we've had a much higher frequency of natural disasters, particularly storms, in the last few years," he said. "They pin that on climate change, so they're trying as best they can factor that into the pricing of their policies. But it's hard for them to do that when they don't have the historical information, because a lot of the pricing in insurance generally is based on historical performance, and when you've had such a large change in the frequency of storms, it can play havoc with their pricing model."