Wednesday, July 30, 2008

Global warming affects insurance Computerised catastrophe modelling that factors the impact global warming might have on the frequency and intensity of hurricanes is increasingly being used by re–insurers to price their insurance rates. The practice has drawn criticism in the United States, partially because scientists not only have differing views on the effects climate change will have on the frequency and intensity of hurricanes, but also on whether global warming is a long–term phenomenon or just a cyclical warming of the earth’s oceans.

Island Heritage Chief Marketing Officer Nigel Twohey said he spoke to representatives of Munich Re, an active reinsurer in the Caribbean, about this issue in June at an insurance conference. “Reinsurers are aware of the probable effects of global warming on sea temperatures and are making provisions for this in pricing and deductibles,” Mr. Twohey said. “For the Caribbean, they have not increased their premiums that much for global warming – yet. As details become clearer, especially if we have an active [hurricane] season, then we can certainly expect this to become an increased factor.”

…Despite the uncertainty, reinsurers, particularly after very active hurricane seasons in 2004 and 2005, have started including the potential future impact of global warming in their pricing methodology. “Many of the catastrophe models do indeed include increasing amount of data to include global warming,” said Mr. Twohey. “For the Caribbean and Cayman, we are concerned about rising water levels and increased heat in the water, which is one of the major factors for hurricane development.”

Michael Gayle, senior vice president property and casualty at Sagicor General Insurance (Cayman) Ltd. said the concept of insurance relies somewhat on the prediction of future events…..Mr. Gayle confirmed that on the property side of the insurance industry there has been an increased use of modelling as a predictive tool, although he could not say whether the potential effects of global warming were reflected in pricing….

Tropical Storm Chris, 2006, from NOAA, Wikimedia Commons

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