The study also acknowledged that socio-economic factors, like a growing number of homes for the wealthy built in coastal areas and flood plains, drive up insurance costs
Climate change is creating more frequent and more unpredictable extreme weather events, forcing insurers to change their assessment criteria for the risk of natural disasters hitting a specific area, the Geneva Association think tank said on Monday.
“Traditional approaches, which are solely based on analysing historical data, increasingly fail to estimate today’s hazard probabilities,” the think tank for strategically important insurance and risk management issues, warned in a report, adding that the insurance industry needed to support scientific research to gain a better understanding of when and where weather-related disasters will hit.
According to a UN report last month, natural disasters have cost the world $2.5 trillion so far this century, which is far higher than previously estimated.
The Geneva Association’s chief, John Fitzpatrick, pointed out today that ocean warming and rising sea levels were especially a key driver of extreme weather events, causing ‘’a shift towards a ’new normal’ for a number of insurance-relevant hazards.’’
In the 38-page report, titled “Warming of the Oceans and implications for the (re)insurance industry,” the Geneva Association stresses the need for insurers to not only look at historical data but to also understand “changes of ocean dynamics and the complex interaction between the ocean and the atmosphere.”
This, it said, was “key to understanding current changes in the distribution, frequency and intensity of global extreme events relevant to the insurance industry, such as tropical cyclones, flash floods or extra-tropical winter storms.”
The study, headed by Falk Niehorster of the Risk Prediction Initiative of the Bermuda Institute of Ocean Science, acknowledged that the main driver of rising insurance costs was linked to socio-economic factors, like a growing number of homes for the wealthy built in coastal areas and flood plains.
However, it said, the lack of historical data to predict future catastrophes, as well as competing theories among scientists on when and where they will strike was also making it difficult for insurers to accurately price the risks.
The best way to ensure that “ambiguous risks” remain insurable, the study said, was for the insurance industry to raise awareness of risk and climate change through ‘’risk education and disseminating high-quality risk information.”