EFRA Select Committee Enquiry on Climate Change Submission from the Association of British Insurers (ABI), October 2004

Transcription

1 EFRA Select Committee Enquiry on Climate Change Submission from the Association of British Insurers (ABI), October 2004 Climate change will have a direct impact on the property insurance market, because it will increase the frequency and severity of extreme events, such as floods, windstorms, and very dry summers (higher subsidence claims) exactly those occasional, unexpected events for which insurance provides financial protection. Over the past six years, storm and flood losses in the UK have exceeded 6 billion twice the previous period. Initial calculations suggest that future claims costs could be two or three times higher than today s levels unless we begin to action to prepare for climate change. Adaptation to climate change needs to take place in parallel with efforts to mitigate the causes (greenhouse gas emissions). We are already locked into a significant degree of climate change, no matter what we do to reduce emissions of greenhouse gases. The long lifetime and high cost of buildings and infrastructure means that we need to start thinking right now about preparing for the impacts of climate change. Government policies should take explicit account of climate change to reduce future costs and damages to society, including building an allowance for climate change into: Building regulations and voluntary building codes Planning and development control Design of coastal flood defences Design of sewer drainage systems Ultimately, climate change can only be solved through concerted and coordinated global action to reduce emissions of greenhouse gases, so that carbon dioxide levels in the atmosphere are stabilized in the long term. The UK insurance industry could be influential internationally to promote global action on climate change, and would be pleased to work with the Government using existing international links to encourage global action on climate change. 1. The Association of British Insurers (ABI) is the trade association for insurance companies operating in the UK. It represents over 400 members who, between them, transact around 95 % of UK insurance business. It is estimated that the insurance industry accounts for 20 % of investment in the stock market. 1

2 Climate change and insurance 2. The insurance industry has been concerned about the impacts of climate change for a number of years 1. Insurers recognise that unless we take action to tackle climate change, we could face rising costs of weather damage in the future. 3. Climate change will have a direct impact on the property insurance market, because it will increase the frequency and severity of extreme events, such as floods, windstorms, and very dry summers (higher subsidence claims) 2 exactly those occasional, unexpected events for which insurance provides financial protection. By increasing the risk and cost of weather damage, climate change could threaten the ability of insurance products to act as an effective mechanism for risk transfer. 4. On a global scale, we have already seen that economic losses due to natural weather catastrophes have increased ten-fold in the last 40 years (Figure 1). Losses caused by natural disasters worldwide in the last 15 years have totalled $1,000 billion, about three-quarters of which are directly linked to climate and weather events. Figure 1. Weather-related global economic losses for (a) Flood, and (b) Windstorm in 2004 prices. Source: Munich Re. (a) Severe Floods (b) Severe Storms $ bn Economic losses Insured losses 1960s 1970s 1980s 1990s $ bn Economic losses Insured losses 1960s 1970s 1980s 1990s 5. According to a recent study by the ABI 3, risks from weather damage are already increasing by 2 4 % per year on insurers property accounts due to changing climatic conditions. Over the past six years, storm and flood losses in the UK have exceeded 6 billion twice the previous period. 6. The underlying risk from extreme weather will continue to increase in the future, and more than likely at an accelerated pace. Initial calculations suggest that future claims costs could be two or three times higher than today s levels unless we begin to action to prepare for climate change (Table 1). 1 Climate change and the financial services sector: an appreciation of the UNEPFI study, A Dlugolecki and T Loster (2003), Geneva Papers on Risk and Insurance 28, Press Release WMO No. 695, World Meteorological Organisation, 2003, 3 A changing climate for insurance, Association of British Insurers, June 2004, 2

3 The need for adaptation 7. Adaptation to climate change needs to take place in parallel with efforts to mitigate the causes (greenhouse gas emissions). We are already locked into a significant degree of climate change, no matter what we do to reduce emissions of greenhouse gases. National and international efforts to reduce greenhouse gas emissions may lessen the degree of climate change in the coming century, but they will not prevent it completely. Table 1. Preliminary estimates of future costs of weather insurance claims ( million in 2004 prices). Source: A Changing Climate for Insurance, ABI, June 2004 Today 2050 Annual average Extreme year Annual average Extreme year Subsidence ,200 Storm 400 2, ,500 Inland flood 400 1, ,500 Coastal flood - 5,000-40,000 (London affected) 8. According to model runs by the Hadley Centre, even if we are able to prevent any further increase in carbon dioxide concentrations in the atmosphere, something which would itself involve a 70 % cut in emissions with immediate effect, the inertia built into the climate system means that we are already committed to an eventual 1.5 C rise in global temperature and a 1-m rise in sea-level. 9. This message was brought home recently by the Government s Foresight report 4, which showed that building climate change into flood risk management policies and plans today could reduce the costs of annual flood damage from 21bn to 2bn, while a low-emissions scenario only reduced costs of flooding by 25% compared to a high-emissions scenario. 10. The long lifetime and high cost of buildings and infrastructure means that we need to start thinking right now about preparing for the impacts of climate change. Many impacts of climate change can be minimised by comparatively small expenditure during planning, construction, and renovation, so it is important to build adequate protection into plans at an early stage. 11. A recent ABI study 5 examined the costs of installing flood-resilient measures into a property after a flood or during the normal course of renovation, and compared these 4 Future Flooding, Office of Science and Technology Foresight Programme, April 2004, 5 Flood Resilient Homes, Association of British Insurers, April 2004, 3

4 with the damages saved after the next flood. Many measures paid for themselves after a single flood, for example: Replacing untreated wood floors with tiled concrete. Replacing chipboard kitchen and bathroom units with plastic or ceramic. Replacing gypsum plaster on walls with lime-based or waterproof render. Moving service meters, boiler, and electrics well above likely flood level. Installing one-way valves in pipes to prevent sewage back-up into property. Government policy and adaptation 12. In the Climate Change Programme 6, the UK has already set priority policy areas for adaptation, focusing on sectors that are vulnerable to changing weather patterns and where long planning horizons mean that decisions taken today will leave a legacy in the country s future climate, e.g. spatial planning and building design. 13. Now that we have relatively advanced predictions about the changes in climate this century, it is important that these policy areas take explicit account of climate change. Changing building regulations and voluntary building codes (e.g. new Code for Sustainable Building), so that they use future climate instead of historic weather patterns to set standards. Buildings constructed today will typically still be in place when the most serious impacts of climate change begin to be felt, but they will not have been designed to be resilient to these impacts, unless these effects are incorporated into the building regulations and building design codes. Developing a stronger and more transparent planning system, so that development in the floodplain is curtailed. Since land use planning plays such a key role in the sustainable management of flood risk in the long term, particularly with the added pressure of climate change, ABI would like to see current Government guidance (PPG25) strengthened. The sequential planning test set out in PPG25 should include explicit allowance for climate change, and the Environment Agency should be made a statutory consultee on all planning applications in flood areas. Flexibility should be built into the design of coastal defences to take account of potential increases in storm surge heights due to climate change (Figure 2). Climate change could add more than 1 metre to presentday storm surge heights along parts of the coast 7, although there is considerable disparity between different models about where these effects will be manifested. Nevertheless, ABI would like to see greater allowance for the 6 The UK Climate Change Programme, Department of Environment, Transport and the Regions, November 2000, 7 Climate change scenarios for the United Kingdom, UK Climate Impacts Programme (2002) [ 4

5 impacts of climate change on storm surges included in coastal defences works particularly for East Coast locations where the potential consequences of a significant storm surge are very serious. New sewers should ideally be designed with sufficient capacity to cope with the increased heavy rainfall we will experience as a result of climate change. In the current pricing review, Ofwat should enable water companies to include an allowance for climate change in the costs of any new capital scheme. Climate change will not just increase the quantity of rainfall but also its intensity, perhaps by up to 20 % 8. Figure 2. The need to set new development back from existing defences to include some flexibility to incorporate further allowance for climate change in the future. Green lines represent good practice, and red dotted lines represent bad practice. Source: Environment Agency (2003), Thames Gateway and Flood Risk Management A Preliminary Assessment. International climate change policy 14. Climate change is a key policy issue for the current Government. Tony Blair has pledged his personal commitment to tackling climate change during his time as Prime Minister, and has set climate change as one of two top priorities for the Government as Chair of the G8 and as President of the European Council in Climate change scenarios for the United Kingdom, UK Climate Impacts Programme (2002) [ 5

6 15. Ultimately, climate change can only be solved through concerted and coordinated global action to reduce emissions of greenhouse gases, so that carbon dioxide levels in the atmosphere are stabilized in the long term. 16. Insurance is now a global industry, and a powerful financial force in many developed and developing countries. The UK insurance industry could be influential internationally to promote global action on climate change, and would be pleased to work with the Government using existing international links to encourage global action on climate change. ABI Contact Dr Sebastian Catovsky Policy Adviser, Natural Perils Association of British Insurers 51 Gresham Street London EC2V 7HQ sebastian.catovsky@abi.org.uk 6