Press Release

G8 leaders should act now to check the predicted rising costs of extreme weather from climate change says the ABI

Ground-breaking work from the ABI (Association of British Insurers) based on international scientific research shows that the worldwide costs of major storms is likely to increase by as much as two –thirds taking the total cost in an average year to £15billion ($ 27billion). 

The good news is that the ABI’s report, Financial Risks of Climate Change, shows that these costs can be reduced if governments take action now to:

• reduce carbon emissions. This could save up to 80% of the predicted extra costs;
• continue to improve coastal defences and flood protection inland; and
• change building codes to ensure more weather – resilient buildings.

Speaking at an ABI international conference today (29 June), Nick Starling, ABI’s Director of General Insurance said:

“Managing the effects of climate change is a key issue for the 21st Century. Insurance is a messenger of change for future risks, as well as a provider of financial protection against the unforeseen. Governments now have a chance to make rational choices for the future, before it is too late. Making the right decisions based on first class assessment of the financial costs of climate change will ensure lower costs for the public in future.”

Keynote speaker at the conference, Margaret Beckett, Secretary of State for Environment, Food & Rural Affairs, said:

“The insurance sector has a particular role to play, by calculating and communicating climate risks. And because insurance is a global business, this will bring the global nature of the climate change challenge right onto our doorsteps.”   

The report shows that if no action were taken, the climate change scenarios modelled by the Intergovernmental Panel on Climate Change (IPCC) could have the following financial effects by 2080:

• The cost of insured damage in a severe hurricane season in the USA could rise by three-quarters to £82billion ($ 150 billion), an increase equivalent to almost three Hurricane Andrews (the costliest single weather event recorded, occurring in 1992).
• The costs of Japanese typhoons could increase by around two-thirds to reach £19 billion ($ 34 billion). The increase would be double the cost of typhoon damage in 2004, which was the costliest year in the last 100 years.
• The financial costs of flooding could rise in both the UK and the rest of Europe, increasing the annual flood bill by up to £82 billion across Europe.
• Insurance markets could become more volatile. The capital needed by insurers to cover severe storms could rise by £43 billion ( billion), with increases of 90% for US hurricanes and 80% for Japanese typhoons.

However, ABI’s report also shows that many of these costs could be avoided by acting now. Under the same IPCC scenarios, by 2080:

• reducing global carbon emissions could reduce the size of insurers’ increased capital requirements for hurricanes, typhoons and windstorms by more than £33 billion ( billion) based on the IPCC scenarios;
• strong,well-enforced building codes could prevent and reduce windstorm damage.  For example, if design codes for buildings in the South East of UK were upgraded by 10%, windstorm damage could be reduced significantly;
• improved coastal defences could reduce the global annual damage from a 0.5m rise in sea – level by up to £16billion( billion);
• in the UK, effective flood management could save 80% of the costs of flood damage.

Chairing the conference, Peter Hubbard, Chief Executive of AXA Insurance said:

“Insurance is a critical component in the functioning of both global and local economies. The industry has a key role in guiding governments towards sustainable solutions. This conference will enable us to ensure we have engagement at all levels”.

Howard Posner, Chief Executive Officer of  HBOS pointed out:

“We are pleased to sponsor this conference on climate change and to be involved in the important debate on current and future challenges facing the industry. HBOS General Insurance offers its continued support to the ABI, and endorses the progress they are making in raising awareness of the major issues”.