Climate change could collapse insurance markets

Low Carbon Economy: Insurance markets could fail as a consequence of climate change, according to a new report from the Chartered Insurance Institute. The industry is urged to make an independent index of market robustness and to use its involvement in $55 trillion worth of assets to try to halt the worst impacts of climate change.

Most obviously, the insurance industry is at risk from increasingly intense extreme weather events. Indeed the report claims global warming is already responsible for compounding catastrophe losses by two per cent a year. However, there are other effects which could lead to insurance market failure, which occurs as a result of lack of capital, lack of cover, inability to pay claims or failure to contract.

"Social disorder and international tensions could deteriorate to the point where substantial markets become uninsurable. Another potential problem is 'claims contagion', when systems cannot cope with the sheer volume of work," the report says. One example the report gives of persuading the industry to use its influence in both adaptation and mitigation is pressing the government to make flood-resilient construction mandatory in new developments.

Earlier this month the Institution of Mechanical Engineers urged the government to pay attention to the needs of adapting to the effects of climate change instead of only focusing on mitigating carbon dioxide emissions....