The scientific debate wrestles over both causation and existence of climate change. Putting aside any particular political stance, it behooves carriers to examine what could happen should the world indeed be getting warmer. Without getting wrapped up in scare tactics or predictions of worst-case scenarios, the potential impact of climate change can be examined to determine possible points of liability and loss for the (re)insurance industry. If temperatures do rise, the potential effect on a realm of issues — including property damage, health, security, and the economy — could change the way (re)insurers conduct certain areas of their business.
The increase of temperatures worldwide is caused, according to one camp in the debate, by a mix of atmospheric greenhouse gases, which absorb and re-emit infrared radiation (IR) from the sun. Temperature increases from this IR radiation are further amplified as a result of being trapped by increased clouds and water vapor. The gradual accumulation of heat, this theory purports, affects each layer of the climate system, including the hydrosphere (e.g., the oceans).
The most apparent concern for the (re)insurance industry is the potential increase in severity and frequency of storms from increased ocean water temperatures, which feed stronger hurricanes and typhoons. Higher ocean temperatures also add to the amount of water vapor over the oceans, which could produce heavier rains and increased flooding when the hurricanes make landfall.
In fact, researchers have found that sea-surface temperatures in the tropical North Atlantic, where U.S. hurricanes are born, have been at their highest levels in the last decade. Looking over a century of records, evidence also points to a growth in U.S. storm frequency and landfall in the United States and some parts of the Asia/Pacific region. Record flooding in Europe has likewise incited concern and a search for a possible link to climate change. These trends remain hot topics in the climate change debate.
The potential threats, however, are not limited to catastrophic storms. Extreme heat and subsequent deaths, droughts, water shortages, and agricultural losses, some predict, could affect large swaths of the globe. Increased atmospheric temperatures could induce a resurgence of certain diseases linked to insects that thrive in warmer weather, including malaria, dengue fever, cholera, Lyme disease, and West Nile virus. Respiratory ailments due to increased smog and allergens could add to the potential health costs of heat wave-induced strokes and heart attacks.
Already there is evidence that existing unrest and civil war in certain regions of Africa are partially the result of drought conditions, possibly linked to climate change. And other estimates predict possible “Dust Bowl” conditions arising even in the U.S. Southwest. Around the world, national security could be threatened, as famine and drought trigger regional instability, border tensions, and migration surges.
Many of these are merely theoretical possibilities, some with tested probabilities and others without. Not all are elements that can be punched into a model to churn out a cleanly calculated risk, but the overall picture of possible climate change poses a potential economic threat. Property damage, business interruption, health and life insurance expenses, security costs, and industrial profit losses have been linked to climate change, and are issues that may warrant further analysis by the (re)insurance industry.
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