Climate Change Risks and Opportunities for the Banking and Insurance Sectors Thomas Loster Chair Munich Re Foundation UNEP FI CCWG
The topics of the foundation are focusing on humans at risk Water: Resource and risk factor Population development Environmental and climate change Humans at risk Poverty Disaster prevention Urbanisation and megacities 2
Tsunami 26.12. 2004 - India 3
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Hurricane Charley August 2004 - Florida 6
Thunderstorms 18th July 2004 Germany 7
Floods Summer 2004 Bangla Desh 8
Heat Waves Summer Hitzesommer 2003 Germany 2003 Düsseldorf am Rhein 9
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Waterspouts during Hurricane Lili, Oct. 2002 The picture was taken from an El Paso platform on the UTOS pipeline system in the Gulf of Mexico on the morning of October 2. The platform is probably in area of West Cameron 167 about 30 miles south of Cameron, LA. 11 Bob Weinzapfel; Graduate Research Assistant; School of Meteorology; University of Oklahoma
Glacier Schneeferner/Zugspitzblatt Gletscher - Zugspitzplatt 12
Disaster Trends MRe-NatCatSERVICE 13
Some Major Catastrophes Losses and Reinsurance Share Economic Insured Losses Losses Reinsurance Year Event (US$m)* (US$m)* share 1974 Cyklone "Tracy" Australia 1.000 300 65% 1988 Hurricane "Gilbert" (only Jamaica) ca. 1.000 700 99% 1990 Wintersorms Europa 15.000 10.000 65% 1992 Hurricane "Andrew" USA 30.000 17.000 50% * Original figures, not cleared for inflation 14
Insurance Statistics Basis: claims figures recorded by accounting departments 15
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2004: 650 natural disasters Earthquake Storm Flood Other 17
Great Weather Disasters 2004 Date Country/Region Event Fatalities Economic Insured losses (US$ m) May Haiti. Dominican Republic Floods 2,000 June-August Bangladesh. India. Nepal Floods 2,200 5,000 August Caribbean. USA Hurricane Charley 18,000 36 8,000 Hurricane Frances September 39 12,000 Caribbean. USA 6,000 Typhoon Songda September 41 9,000 Japan. South Korea 4,700 September Caribbean. USA 125 23,000 Hurricane Ivan 11,500 September Caribbean. USA Hurricane Jeanne 9,000 2,000 5,000 As-if: 10. 2. 2005 2005, NatCatSERVICE Geo Risks Research, Munich Re 18
Natural Catastrophes 1980-2004 Worldwide 14,500 Loss events 6 % heat wave, drought 1 % winter damage, frost 4 % flash flood 12 % flood 13 % storm surge >1,000,000 Fatalities 16 % 9 % 22 % 1 % landslide 0.5 % avalanche 0.5 % wildfire 53 % 32 % earthquake 3 % volcanic activity 3 % winter damage, frost 6 % wildfire 12 % earthquake 5 % heat wave, drought 2 % avalanche 2 % volcanic activity 4 % landslide 20 % 15% 1 % tsunami 7 % tropical storm 8 % flash flood 18 % flood 26 % 1 % storm surge 3 % hail 39 % 4 % winter storm, blizzard 6 % other storms 4 % tornado 14 % severe storm 0,5 % winter storm, blizzard 0,5 % other storms 0,5 % tornado 19th 0,5 % May, severe 2005 storm 18 % tsunami January 2005 7 % tropical storm Geo Risks Research Dept 19
Natural Catastrophes 1980-2004 Worldwide Economic losses* US$ 1,450 bn 4 % wildfire 2 % winter damage, frost Insured losses* US$ 300 bn 2 % wildfire 1 % flash flood 8 % flood 4 % hail 4 % winter damage 9 % earthquake 1 % tsunami 6 % 10 % 9 % 7.5 % heat wave, drought 1 % flash flood 26 % flood 35 % tropical storm 1 % hail 27 % 13 % 5 % severe storm 25% 35 % 23 % earthquake 0.5 % volcanic activity 1 % tsunami 21 % tropical storm 5 % winter storm, blizzard 1 % other storms 2 % tornado 14 % severe storm 5 % tornado 2 % other storms 75 % January 2005 Geo Risks Research Dept *in original values 20 15 % winter storm, blizzard
Great Weather Disasters 1950 2004 Economic and insured losses 80 70 60 Economic losses Insured Losses Billion US$ (2004 values) 50 40 30 20 10 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Geo Risks Research, Munich Re 21
Great Weather Disasters 1960-2004 Decade comparison Decade 1960-1969 Decade 1970-1979 Decade 1980-1989 Decade 1990-1999 last 10 1995-2004 Factor last 10: 1960s Number Economic losses 16 57,6 29 86,9 44 136,9 74 460,8 49 344,4 The comparison of the last ten years with the 1960s shows a dramatic increase 3,1 6,0 Insured losses 6,4 12,7 25,1 106,2 93,2 14,6 Losses in US$bn 2004 values 2005, NatCatSERVICE Geo Risks Research, Munich Re 22
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Insured and Uninsured World Average Property Premium per Capita per Year Inadequately insured Basically insured Well insured Average premium levels, property (non-life) per capita and per year in US$ 25
Weather-related Natural Catastrophes 1980-2003 percentage distribution among insurance markets at various stages of development Economic losses: US$ 1,000bn Insured losses: US$ 225bn Fatalities: 930,000 26
Climate Change Cost estimations 27
Cost of Climate Change research examples famous quotes S. Fankhauser & R. Tol (1980s/1990s) Expected annual cost of all climate change effects: ca. $300bn CSERGE GEC Working Paper 92-29 in London 11/93 R.S.J.Tol(1995): The Damage Costs of Climate Change: Toward More Comprehensive Calculations.Environmental and Resource Economics,5,353-374. Andrew Dlugolecki (2000) The current rate of growth of damage of 10 percent a year will exceed global gross domestic product by 2065 COP 6, The Hague, UNEP Press conference 28
Cost of Disasters Reasons 29
1926 2000 Florida from Space Florida Population Trends Inhabitants 1920: ca. 100.000 1950: ca. 3.000.000 2000: ca. 15.000.000 2025: ca. 25.000.000 Tourists 1920: - 1970: ca. 5.000.000 1999: ca. 45.000.000 2010: ca. 65.000.000 Sources: http://www.awesomeflorida.com/history.htm (http://www.esig.ucar.edu/rp_senate) - Wendler Collection; Roger Pielke http:\\www. worldweb.com; http://www.napa.ufl.edu/98news/bioland.htm http://www.bettertransportation.org/issues/1999/additional_funding.htm 30
City Development in Flood Plains flood plain city area houses in flood plains 31
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Where do we go? 33
The frequency and size of losses due to natural disasters are increasing all over the world Reasons Rise in population Better standard of living Concentration of people and values in large conurbations Settlement in and industrialization of extremely exposed regions Susceptibility of modern societies and technologies Increasing insurance density Change in environmental conditions (climate change) 34
Climate Change Effects 35
The present problems will be strongly aggravated if the climatic change predictions come true Increase in greenhouse gases temperature air/sea humidity sea level windstorms/storm surges thunderstorms/hailstorms rainstorms/floods crop hazards Another problem extreme events extreme losses 36
Increasing Probabilities of Extremes Example: Heat normal warmer climate Extrem kalt sehr kalt kalt normal warm heiß Sehr heiß cold normal warm hot very hot extreme hot 37
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Scientific certainty and scepticism Standard arguments 1/2 Climate researchers models are crude and imprecise, with over-sized grids, so their results are (probably) imprecise. Climatic and weather systems are extremely complex. There are big gaps in the research being done on CO2, water vapour and the oceans, so the impact of these factors cannot be estimated correctly! Earth s history has been one of frequent climate change. For example, the Sahara Desert was once covered with vegetation, a place where people and animals were able to live. Climate change is therefore not necessarily bad. 39
Scientific certainty and scepticism Standard arguments 2/2 Solar radiation changes over time and significantly influences atmospheric warming. Solar cycles have been documented; the sun has an 11-year cycle... If we consider the uncertainties involved, it would be irresponsible to spend any money before definite proof is obtained. Politics should not work on action plans such as the Kyoto process, which are an additional burden on our economies. 40
41 Source: IPCC Third Assessment Report, Working Group I, Summary for Policymakers, http://www.ipcc.ch/
Strategies 42
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Strategy Adaption Nature Conservation biological reserve, protection of species Civil Protection Early Warning, protective structures, IDNDR, ISDR Agrarian Technology Irrigation, Biotechnology Building Regulations Landuse Restrictions, Design Data Insurance, Solidary Communities z.b. AOSIS-States, Insurance and Reinsurance Solutions 44
Strategy Reduction International Agreements Rio Convention, Kyoto Protocol, (Emissions Trading) Local Activities eg. local Agenda Activities (Klimabündnis der Städte) Reduction of Emissions - energy savings - technical solutions: energy efficiency (e.g. cogeneration), cultivation of dry rice hydrogen solutions, e.g. for traffic - regenerative energies:. windpower. water. solar. bio 45
The climate changes have significant negative impacts on the insurance industry Increase in weather variablity Poorer claims experience New exposures More frequent and larger natural disasters Greater claims potential New extreme values in certain regions Lagging premium adjustment Rising demand for cover of natural hazards New markets, new clients 46
Coping with Increasing Losses Insurance Techniques Adequate pricing Substantial deductibles Accumulation control Loss prevention Improved claims settlement Liability limits Exclusion of certain hazards Exclusion of particularly exposed areas Reinsurance, retrocession Tax reductions (reserves) Product development (new markets) 47
Worldwide Weather Disasters and the Carriers of Burden Insurer Reinsurer $ $ $ Government Insured Government $ Uninsured Global Solutions only in Public Private Partnerships (PPP) 48
Kyoto Mechanisms and the Financial Sector New products Emissions Trading - Europe 2005 - globally Finance Service products include - Portfolio management - Trading (spot and derivatives markets) - Adoption of existing insurance products (e.g. Business Interuption) - Delivery guarantees - Consultancy works (e.g. market risk profiles, ratings) other 49
Kyoto Mechanisms and the Financial Sector New products CDMs and JIs Finance Service products include - traditional products (banks): project finance services - new products (banks): carbon funds (portfolio management), trading derivatives traditional products (insurance): marine, construction, business interruption etc. - new products (insurance): Kyoto BI (Kyoto target non achievment insurance) - other 50
Kyoto Mechanisms and the Financial Sector Uncertainties - How will the markets develop? (size, coverage/players) - Will affected companies be prepared early enough? - No boom of ET markets until today - Political and economic stability (trading and legal framework) - Post 2012? 51
UNEP FI Climate Change Working Group Raise awareness Main Goals Open dialogue Inform about the role of financial service providers in the area of environmental issues and sustainability Promote Public Private Partnerships 52
UNEP FI and the Climate Change Working Group (CCwg) 53
Summary Losses will be increasing Climate change will be aggravating the situation Awareness is the key to coping New Business is not (yet) booming 54
Thank you for your attention! Thomas Loster Munich Re Foundation UNEP FI CCWG