Ocean of Concern

Ask what is at the root of the increase in severe weather and be prepared for a barrage of opinions, some diametrically opposed. Naysayer or true believer, though, there is little disagreement on one central point: changes abound.

Ask The Geneva Association’s Climate Risks and Insurance working group and its collective finger is likely to point in every direction to the oceans around the world. So suggests the report, Warming of the Oceans and Implications for the (Re)insurance Industry.

Its conclusion? The dynamic duo of ocean warming and climate change has the potential to threaten the insurability of catastrophe risk in some areas, demanding a shift from historic to predictive risk assessment.

A warmer atmosphere has more water and more energy, supporting the potential for greater intensity of extreme events and precipitation that can increase loss potential, the report says. “Understanding the changes of ocean dynamics and the complex interactions between the ocean and the atmosphere is the 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 and extra-tropical winter storms.”

Insurers are advised to adopt as best practice dynamic modelling approaches to estimate time-dependent, medium-term outlooks in combination with a reasonably wide range of hypothetical, but scientifically justifiable scenarios.

Absent this, ambiguity will rule. And ambiguity is far from welcome in a market already facing the stress of upward trends in absolute disaster loss, the report suggests.

It further notes the most significant driver to rising insured costs is socio-economic factors, including the increasing wealth of individuals and the higher concentrations of development in coastal areas and on flood plains.

The Geneva Association reports sea levels are up about 20 centimetres over the last century. Higher levels increase the risk of flooding or the potential impact of storm surges, thereby decreasing the protective lifespan of coastal infrastructure and increasing the damage potential from geophysical events because the risk of inundation is greater, the report adds.

It is a lesson that New York and New Jersey, among other states and countries, learned devastatingly well in the wake of Superstorm Sandy. New York City recently unveiled more than 250 recommendations, the collective goal of which is to protect the city from the effects of climate change — not just storms, but also heat waves, downpours and rising sea levels.

An analysis from the Special Initiative for Rebuilding and Resiliency shows that Sandy totalled $19 billion in damage and economic loss; in 2025, that cost grows to $35 billion and by 2055, $90 billion.

A similar caution, although from a far different place, is being delivered by the Australian Business Roundtable for Disaster Resilience & Safer Communities. The roundtable projects the cost of natural disasters in the country will rise from the current $6.3 billion a year (Australian dollars) to about $23 billion annually in 2050 as population density increases and the severity and frequency of storms, floods, cyclones and bushfires grow.

And here at home, within days of what may be the worst flooding ever in southern Alberta, the provincial government approved $1 billion in emergency recovery and reconstruction funding.

Margareta Wahlström, head of the UN Office for Disaster Risk Reduction, recently predicted 2013 will be a turning point in how governments around the world view the threat of floods in a new age of extreme weather events.

Wahlström cited Canada as among the many countries to experience huge losses in the last two months as a result of intense precipitation that produced extreme flooding which affected the well-being and livelihoods of millions of people. “Flood management systems need to be designed so that even if they are overwhelmed by flood waters, the failure is not catastrophic.”

Whatever side of the fence one falls on, these events demonstrate the need for a concerted effort by everyone from reinsures to insurers, government and policyholders — sooner rather than later.