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MUNICH RE SEMINARS NON-LIFEREINSURANCE l CASUALTY l PROPERTY l MARINE l ADDITIONAL TOPICS
Global Warming a Risk of change New challenges for the insurance industry
A paper by Prof. Dr. Peter Höppe, Munich Re Head of Geo Risks Research presented by
Alexander Milberg, Munich Re Malaysia at the
National Seminar on Socio-Economic Impacts of Extreme Weather and Climate Changes
Kuala Lumpur 22 June 2007
Risk of change – Peter Höppe
Content
Climate change
- Extreme events of last years
- Facts and scientific basics
- Effects
- Challenges
Risk of change – Peter Höppe
Trends of Natural Disasters
The last years have brought records in natural disasters in respect to:
Intensities
Frequencies
Damages and losses
Risk of change – Peter Höppe
UTC13:00
Heat stress
Cold stress
light
extreme
high
moderate
light
comfortable
moderate
high
extreme
Heat wave of 2003, the largest humanitarian natural catastrophe in Europe for centuries
15,000 †
15,000 †
7,000†
7,000†
4,000 †
4,000 †
2,000 †
2,000 †
2,000 †
2,000 †
4,000 †
4,000 †
Perceived Temperature on 8 August 2003 and excess mortality
Source: German Weather Service, 2004
Risk of change – Peter HöppeSource: Image courtesy of Earth Sciences and Image Analysis Laboratory, NASA Johnson Space Center, Bild-Nummer ISS008-E-19646. http://eol.jsc.nasa.gov
2004: 1st Hurricane in South Atlantic
Hurricane Catarina off the Coast of Brasil, March 2004
Risk of change – Peter Höppe
July/August 2005 – Flooding in India944 mm rain within 24 hours, highest ever in India
24.7- 5.8 Flooding in India (1.150 fatalities)
Insured losses (US$ m):
Economic losses (US$ m): 5.000
770
August 2005 – Hurricane Katrina6th strongest hurricane, largest losses of a single event
25.-30.8 Hurricane Katrina, USA (1.322 fatalities)
Insured losses (US$ m): Economic losses (US$ m): 125.000
40.000
Risk of change – Peter Höppe
2005, a Year of Weather Extremes
Never before since the beginning of records (1850) have so many named tropical storms occurred in the North Atlantic basin in one season: 28, of which 15 with hurricane strength (old absolute record 21 in 1933, resp. 12 in 1969)
Risk of change – Peter Höppe
Hurricane Vince (9 October 2005)
Vince, a hurricane in a region without hurricane risk (easterly North Atlantic, Madeira)
Risk of change – Peter Höppe
Deaths per week and average maximum temperature
Heat wave in the Netherlands – July 2006The warmest July since records began
=> 1 000 more fatalities than usual in July
Risk of change – Peter Höppe
Winterstorm Kyrill, 18-19 January 2007
Simulation: GeoRisikoForschung, Münchener Rück
Insured losses (€ m):
Economic losses (€ m): 10.000
5.000 -7.000
Fatalities: 48
Risk of change – Peter Höppe
Less problematic
• Rise in population
• Better standard of living
• Increasing insurance density
Problematic
• Concentration of people and values in large conurbations
• Settlement in and industrialization of extremely exposed regions
• Change in environmental conditions - Climate Change
Reasons for globally increasing losses due to natural disasters
Risk of change – Peter Höppe
Global mean temperature, 1856 - 2006
Departures in temperature from the 1961-1990 average
2006: +0.42°Cabove the 1961-1990 annual average (14°C).
The five warmest years in decreasing order are:
1998, 2005, 2003, 2002 and 2004.
Temperature anomaly (°C)
Source: Climate Research Unit, UK (2007) in conjunction with Hadley Centre of the UK Met Office
-0,6
-0,4
-0,2
0
0,2
0,4
0,6
1855
1865
1875
1885
1895
1905
1915
1925
1935
1945
1955
1965
1975
1985
1995
2005
Risk of change – Peter Höppe
Global and Regional Temperature trends in the 20th century: modeled and observed
Source: climateprediction.net, Oxford University
+ 0.8 °C + 0.7 °C
Risk of change – Peter Höppe
CO2 concentration in the atmosphere of the past 650,000 years from the Vostok ice core, Antarctica
160
180
200
220
240
260
280
300
320
340
360
380
400
-650 -600 -550 -500 -450 -400 -350 -300 -250 -200 -150 -100 -50 0
Thousand years before present
CO
2 (p
pm
v)
2006:
383 ppmv CO2
Sources: Siegenthaler et al. (2005), Spahni et al. (2005), Röthlisberger et al. (2004)
Risk of change – Peter Höppe
Scientific Evidence of a Link between Global Warming and Extreme Events
It is very likely (CL >90%) that human influence has already at least doubled the risk of a heat wave exceeding the magnitude of the European heat wave 2003 (Stott et al., Nature 2004).
Major tropical storms both in the Atlantic and the Pacific region have already increased since the 1970s in duration and intensity by about 50 percent (Emanuel, Nature 2005; Webster, Science 2005).
Due to climate change the sea surface temperatures have increased already by 0.5°C (Barnett, Pierce, 2005, Science; Santer et al., PNAS, 2006).
Of all the factors only the steady increase in sea surface temperatures over the last 35 years can account for the rising strength of storms in six ocean basins around the world (Webster et al., Science 2006).
Insured losses from winter storms will more than double in some European countries (Denmark, Germany) until 2085 due to global warming (study sponsored by SR, Schwierz, submitted 2007).
Risk of change – Peter Höppe
Webster et al., Science, Vol 309, September, 2005
The global frequency of most destructive tropical storms has increased since the 1970s
Risk of change – Peter Höppe
Climate Change in Europe – Example Winter Storm
Result:
Climate change increases insurance losses significantly...
Insurance Risk Model
combined
Climate Model
Results of the study
„Modelling European Winter Wind Storm Losses in Current and Future Climate“
(Conny Schwierz (ETHZ), submitted 2006)
Risk of change – Peter Höppe
Climate Change in Europe - Example Winter Storm Expected average increase of losses in Europe
Europe Denmark Germany Sweden Belgium France Great
Britain
44 % 116% 114% 95% 80% 47% 35%
Source: Conny Schwierz (ETHZ), submitted 2006
for the period of 1975 - 2085
Because of the changing tracks the impact is
different in the European countries
Risk of change – Peter Höppe
Changes in sea level rise and projection for different scenarios
A1FI
B1
*Basis: Range of ΔT = 1.5º-5.8ºC (IPCC TAR)Source: Stefan Rahmstorf (2007), Science Vol. 315, p.368
Temperature-dependent approach*
140 cm
50 cm
Risk of change – Peter Höppe
Changing risk
Increase in temperature air + sea
Increase in humidity
Increase in sea level
more extreme
weather events
e.g. windstorms,
hail storms, rain storms
and drought
Increase in greenhouse gases
important for insurer:
- stronger events
- frequent events
Risk of change – Peter Höppe
Climate Change affects Insurance Industry
• Increase in weather variability
• New levels of weather extremes
• New kinds of weather risks
• Higher loss potentials
• Lacking experience in new kinds of damages
• Increased capacity demand due to larger accumulation risks
• Prospective premium calculation becomes necessary
• Due to increased coverage of climate change by the media and own perception of changes in weather patterns higher demand for nat cat covers
• New insurance products can be developed (e.g. Kyoto Multi Risk Policy of MR)
Risk of change – Peter Höppe
How can the Insurance Industry prepare for the Increasing Catastrophe Risk?
• Development of new risk models considering climate change(more data on shorter term effects of global warming needed)
• Adequate pricing
• Substantial deductibles, based on the respective exposure
• Accumulation control
• Loss prevention
• Improved claims settlement
• Liability limits
• Exclusion of certain hazards
• Exclusion of particularly exposed areas
• Reinsurance, retrocession
• Private-public partnership
Risk of change – Peter Höppe
Insured Insurer Reinsurer
un
lim
ited
up to nowup to now
Insurer
§
GovernmentInsured Reinsurer
limited
future solution?future solution?
Insurance of Natural HazardsCarrier of the burden/liabilities
Risk of change – Peter Höppe
Insurance Industry has high Potential to Promote Climate Protection
- Member of The Climate Group
- Member of the Global Roundtable on Climate Change (Jeff Sachs)
- Board member of the European Climate Forum
- Hosting side events at the annual global climate summits of the UNFCCC (COP)
- UNEP-Financial Initiative
- Carbon Disclosure Project
Munich Re: many activities to promote climate protection
Risk of change – Peter Höppe
CRO briefing published on 20 June 2006
Munich Re: Co-Initiator of CRO Briefing Position Paper on Hurricane Risk and Climate Change
To raise awareness of global warming
as a relevant factor of insurance industry
Risk of change – Peter Höppe
Munich Re: Initiator of International Workshops
UNDERSTANDING AND ATTRIBUTING TRENDS AND PROJ ECTIONS 25 - 26 May 2006 Hohenkammer, Germany
To discuss the attribution of increasing losses to climate
change with a high level group of participants from science
and insurance industry.
Risk of change – Peter Höppe
Consensus (unanimous) statements of the workshop participants
Syllabi:
Climate change is real, and has a significant human component related to
greenhouse gases.
Direct economic losses of global disasters have increased in recent
decades with particularly large increases since the 1980s.
The increases in disaster losses primarily result from weather related events,
in particular storms and floods.
Climate change and variability are factors which influence trends in
disasters.
There is evidence that changing patterns of extreme events are drivers for
recent increases in global losses.
The Munich Climate Insurance Initiative (MCII)
The MCII was founded by representatives of Germanwatch, IIASA, Munich Re, the Potsdam Institute for Climate Impact Research (PIK), the Swiss Federal Institute of Technology (SLF), the Tyndall Centre, the World Bank, and independent experts.
MCII
Risk of change – Peter Höppe
• Wealthy countries will be able to cope with financial losses from increasingdisasters by means of insurance solutions and state funding, the poorest countries will suffer most
Objectives
• The increasing natural catastrophe damages in poor countries will consume increasing ratios of the donor money of development funding, delaying their further development
• New insurance related systems are necessary to get these countries, where currently almost no insurance is available, out of the global warming trap
• MCII is working on solutions to provide expertise on insurance related mechanisms to cover losses due to climate change, especially in developing countries
Risk of change – Peter Höppe
Increase of corporate responsibility activities in the field of climate change
Publications and strategic board game
Risk of change – Peter Höppe
Phases of Climate Strategies
Temporal course
of development
progressive
defensive
80s 90s today
Defense StrategyIgnoring/denying climate risks
Defense StrategyIgnoring/denying climate risks
Compliance StrategyObeying the legal preconditions
Compliance StrategyObeying the legal preconditions
Mitigation StrategyMinimising and excluding climate
related business risks
Mitigation StrategyMinimising and excluding climate
related business risks
Source: Schaltegger after WWF 2006
Innovation Strategy(also Adaption Strategy)
Integral climate and business strategy
Creating new chances of business
Innovation Strategy(also Adaption Strategy)
Integral climate and business strategy
Creating new chances of business
Risk of change – Peter Höppe
Conclusions
Natural catastrophes, especially weather related events, are increasing dramatically in number and magnitude. Loss potentials have reached new dimensions
The insurance industry has to consider climate change in its risk models
There is more and more scientific evidence for causal links between global warming and increasing frequencies and intensities of natural catastrophes
Climate change is happening already, it cannot be stopped anymore, just attenuated
We have to mitigate global warming and adapt to the changing risks in respect to the regionally specific risk patterns
Thank you very much for your attention
Alexander Milberg