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You always take the weather with you

08 November 2018Jonathan Faurie

Climate change has had a significant impact on the financial services industry; both locally and internationally.

While there are some sceptics who still question existence of global warming, statistics speak for themselves. The insurance industry is being forced to face an operating environment that is changing on a continuous basis. 

London calling

Speaking at the recently held Norton Rose Fulbright Insurance Seminar, Tim Ingham – a Consultant at Norton Rose Fulbright – pointed out that during the UKs winter, London experienced warm and wet weather from January 2018 to mid-February 2018. 

This was followed by Siberian winds that blew into the city at the end of February which resulted in temperatures of -15°C; this brought heavy snow falls, an unusual phenomenon for the city. 

“The weird weather cycle did not stop there. During the May Bank Holiday, an entire months’ worth of rainfall fell over parts of Durham in two days. This is hardly a record though. When typhoon Jebi hit Japan, eight months’ worth of rain fell in two days at a particular Japanese town,” said Ingham. 

Dry as a desert

Added to the above devastation, 2017 was known as a year which brought significant drought conditions to many parts of the world. 

While wild fires are common in Australia or California, dry conditions caused significant wild fires in the UK and most recently Greece where large parts of Athens had to be evacuated towards the sea in order to avoid being caught in the middle of the blaze. 

“And even though wildfires are a yearly occurrence in Australia and California, the 2017 fires were the worst in recent memory affecting an area of more than 1 176 km2,” said Ingham.  

Moving closer to home, the Western Cape had to deal with significant storm activity in 2017 which caused significant damage. George and Knysna had to be evacuated in the wake of the worst forest fire in South African history. Gauteng and KwaZulu-Natal also faced significant storms towards the end of 2017 which caused significant flooding in the provinces. 

The impact on insurance

How do these weather events impact the insurance industry? 

“The impact of these events are quite significant. In a recent report by Lloyds of London, the insurer pointed out that between 1981 and 2014, flooding accounted for 32% of all of the insurers losses. Further, the insurer predicts that flooding will increase four-fold over the next 30 years. This will have a significant impact,” said Ingham. 

Ingham added that because of this, insurers may have to relook at their capital requirements. “When one looks at the 2014 Thai floods. Billions of dollars’ worth of damages were caused because of supply chain issues.

There is also a risk when it comes to urbanisation. Because of urbanisation, the concentration of risk is far higher in major cities than it is in smaller cities, towns or villages. 

Ancillary risks

Ingham adds that there may also be an element of liability risk that insurers could face in the future. 

“If companies, such as those in the petrochemical and energy production sectors, do not show that they are adequately addressing the impact that their businesses have on climate change, they could find themselves on the wrong end of a lot of liability lawsuits,” said Ingham who added that companies seriously need to consider the impact that their business has on climate change and how they are going to manage these impacts

There may also be relevant liability issues if companies are not open and honest about the measures that they are taking to address the impacts that their company has on climate change.   

“In future, insurers may also have an increased duty of care when it comes to reporting to organisations that regulate the effects of carbon emissions on the environment. If an insurer cannot report back to these organisations that they are assisting their clients when it comes to managing these risks, there may be problems,” said Ingham. 

Editor’s Thoughts:
Climate change has a greater impact on the insurance industry than what we are currently aware of. Are we ready for these risks? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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Quick Polls

QUESTION

Between 1918 and 2014, 32% of all of Lloyds of London’s insured losses were caused by flooding. With Climate change becoming a growing issue, is this a growing concern for insurers?

ANSWER

Yes, we have seen a significant increase in flood related losses
No, there will always be flood related losses. We are prepared for this.