June 28, 2005
by Fiona Harvey, Environment Correspondent
Financial Times

Kyoto - The cost worldwide of storms, expected to become more frequent owing to climate change, is likely to rise by two-thirds to £15bn ($27bn, €22bn) a year in the next seven decades, the Association of British Insurers will warn on Wednesday.

Nick Starling, the ABI's director of general insurance, urged the leaders of the Group of Eight industrialised nations to take action on greenhouse gas emissions when they meet to discuss climate change next week.

“Governments now have a chance to make rational choices for the future, before it is too late,” he said. Making the right decisions based on assessment of the costs of climate change “will ensure lower costs for the public in future”.

By 2040, the average annual cost of hurricanes in the US alone would rise from $9.5bn to $11.4bn. In a bad year, hurricanes in the US would cost $71bn in the 2040s and $104bn in insured costs alone.

Separately, a poll carried out across Europe by the market research group TNS found that seven out of ten people thought governments would take serious action on environmental issues only if there were an environmental catastrophe.

In one of the most detailed estimates seeking to price the effects of climate change, the ABI said that in years with a high number of storms, the cost of Japanese typhoons could reach £19bn a year by 2080.

Though scientists cannot say exactly what will happen as the climate changes under the influence of the increased burning of fossil fuels, they estimate that the incidence of storms, floods, droughts and heatwaves will increase.

Joachim Faber, chief executive of Allianz Global Investors, said climate change was influencing financial markets: “In the interest of our clients and shareholders, we are obligated to take these risks into account when making decisions on insurance underwriting, investments, or credit.”

Sebastian Catovsky, adviser to the ABI on natural perils, added that the figures in the report were likely to be an underestimate, because they did not take into account the likely increase in the value of property in future decades. Insurance markets would also become more volatile.

Some of the costs could be avoided by taking preventative measures. Improved coastal defences could reduce the global annual damage from a 0.5m rise in sea level by up to £16bn. In the UK, where insurers have paid out £2.2bn in flood claims in the last five years, effective flood management could save 80 per cent of the costs of flood damage.

The report will be published on Wednesday at an ABI-organised conference on the financial risks of climate change. At the conference, Allianz and the environmental campaigning group WWF will urge financial managers and analysts to evaluate their client portfolios for climate change risk, in an effort to price such risk into the financial markets.

Allianz will pledge to invest between €300m and €500m in renewable energy over the next five years.

http://news.ft.com/cms/s/84370f42-e7f8-11d9-9786-00000e2511c8.html