Reinsurers cash in on climate change

As the risk of extreme weather events rises in a warming climate, so do the associated financial losses - and reinsurers are cashing in on the threat.

Reinsurers, or the people who insure other insurers against major mishaps, are seeing weather-related claims rise twice as fast as other claims, with the premiums they charge adjusted accordingly.

While claims unrelated to ‘freaky weather’ increase at 5% a year, “claims for natural catastrophe insurance are rising roughly 10%,” said Thomas Hess, chief economist at the world’s biggest reinsurance firm Swiss Re.

“If you’re a cynic, you could say it’s a growth market,” he said in an interview.

A dearth of devastating natural disasters this year has meant that claims did not match levels experienced in 2005- a costly year for reinsurers with three consecutive hurricanes. But prices have risen and remained high in response, Hess said.

In the event of floods, hurricanes and other ‘extreme weather,’ insurers turn to reinsurers to buffer the costs incurred from a torrent of claims.

Flood frequency and intensity is already rising as temperatures go up, and their effects are aggravated by overpopulation in coastal areas.

More and more people choose to live in coastal areas in an increasingly mobile Western society, while population growth forces the inhabitants of developing countries onto the coasts for economic reasons.

The Association of British Insurers last week warned that the cost of a single extreme flood to England’s east coast could rise to £16bn once sea levels rose by 40cm by 2040, if more wasn’t spent on flood defences.

And the Environment Agency warned that individual householders already pay an average £28,000 to deal with the damage a flood inflicts on their property – a figure calculated on the basis of actual claims made to insurance companies.

Around 9% of homes in England and Wales are currently under risk from flooding, according to the Environment Agency.

Goska Romanowicz

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