April 10th, 2014

GC Capital Ideas Reviews Climate Change After New IPCC Report

Posted at 1:00 AM ET

In light of the Intergovernmental Panel on Climate Change (IPCC) latest report, Climate Change 2014: Impacts, Adaptation, and Vulnerability, released on Monday, March 31, here is a review of recent GC Capital Ideas stories focused on climate change.

Responding to Climate Change:  It is vital for (re)insurers to consider how climate change could impact future losses. Global warming potentially poses a serious financial threat to the insurance industry with implications for catastrophe risk perception, pricing and modeling assumptions.

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Climate Change: A Look into the Future: Global climate models project a best estimate of a further two to four degree (Celsius) increase in the mean temperature of the Earth by the end of this century. Although this may seem insignificant on an intuitive level, the resulting impacts are of significant concern. Sea-level rise is the most significant threat for coastal areas as a result of melting glaciers. Apart from this threat, changing weather patterns will result in drought and inland flood threats for some areas. As a general principle of climate change, changes to the mean of meteorological extreme value distributions can be expected but an increase in tail thickness (or variability) is of greater concern. The day-to-day variability that we see today will likely expand.

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The Reality of Global Warming: The increase in the global mean air temperature, as compared to the 1951-1980 average and the surge in average oceanic heat content for the 0-700 meter layer is depicted in these graphics. The increase in oceanic heat content in particular is notable as it takes a very large amount of energy to heat such a volume of water.

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Global Warming: Adaptation Measures: The IPCC publications represent scientific consensus among many of the world’s top scientists (and scientific consensus is difficult to achieve). Their findings are generally consistent with the broader scientific literature.

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Global Warming: Losses: Economic losses resulting from natural disasters increased from USD75.5 Billion in the 1960s to USD659.9 Billion in the 1990s. Insured losses have also increased, and “the dominant signal is of significant increase in the values of exposure.” Furthermore, the IPCC states that “failure to adjust for time-variant economic factors yields loss amounts that are not directly comparable and a pronounced upward trend for purely economic reasons.”

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Global Warming: The Evolving Risk Landscape: Global warming is an established scientific fact, and one that cannot be explained by statistical “noise” or natural variability alone. The single greatest threat under global warming is that of sea-level rise, which is expected to increase coastal flood frequency and severity under tropical cyclone, extratropical cyclone and tsunami events. The growing urban footprint and population density in coastal areas amplifies the financial and societal implications of such events.

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