Swiss Re braces for climate change challenge

After the industry’s resilience this year, the Swiss Re outlook for 2010 issued this week was cautiously upbeat about the reinsurance market in 2010, predicting increasing profits and strengthened balance sheets.

However, the report’s optimism was blunted by phrases such as “looming regulatory challenges” and, from a more globally sweeping perspective, “the trend for higher claims for catastrophic events, increasingly driven by climate change.”

While governments and scientists continue to bicker over global warming (as witnessed this week in Australian parliament), it seems that those on the financial front line accepted the threat long ago and have been preparing ever since.

Swiss Re’s senior climate change advisor, Andreas Spiegel told Swisster: “Out of the 40 most expensive insurance losses since 1970, 36 were weather and climate related, so it’s very important for us and we began working on this issue twenty years ago.”

According to Swiss Re, worldwide average insured natural catastrophe losses between 1970 and 1989 were 5.1 billion dollars per year, rising to more than 27 billion every year between1990 and 2009. In 2005, the year of Hurricane Katrina, the bill rocketed to over 100 billion dollars.

This trend is set to continue said Matt Weber, a member of Swiss Re’s Executive Board and head of its property and specialty division. “The impact of climate change is likely to cause more frequent and more severe storms and floods around the globe in the future.”

Spiegel is more specific. “With tropical cyclones risk in North America – we determine that their impact will increase by 5 per cent in intensity. Winter storms and wind related losses in Europe will almost double.”

“Risks from storm surges and sea level rise, which we estimate at 1.5 metres by the end of the century, will also increase.”

Around 50 Swiss Re staff members are assigned to the climate change issue, from the science to the creation of relevant policies and financial models.

Aside from the core business of turning profits and limiting losses, Swiss Re considers their role is to “put a price tag on these risks so that they might be indentified which helps decision-makers to put adaptation strategies in place,” according to Spiegel.

At a special United Nations conference later this month in Copenhagen, the world’s major decision-makers will discuss how best to tackle global warming; Bern’s delegation will feature the presence of several Swiss Re experts.

“We are actually part of the Swiss team because all discussions for adaption should include insurance solutions,” said Spiegel.

“I’m optimistic that some sort of deal will be agreed and then we can see how we can break that down into operational policies,” he speculated before adding a note of caution.

“Climate change is happening more quickly that the Intergovernmental Panel on Climate Change [2007 report] predicted, population growth is also an issue and the pressure is on for a meaningful agreement to be reached.”

Any meaningful deal will need to focus on developing countries, which are predicted to suffer the greatest consequences of climate change through little or no fault of their own.

“In emerging countries – which will be affected most – 93 per cent are not insured compared to 46 per cent in industrialized western nations. We would like to address this,” said Spiegel. Swiss Re also reckons that risks from climate change could cost developing nations up to 19 per cent of their GDP by 2030

On the other hand, the UN has estimated that a dollar spent on adaptation and mitigation will save ten dollars in future damages.

The UN Climate Change Conference takes place December 6-18 in Copenhagen, Denmark