Lloyd's chairman: Businesses are under-insured against climate

Wikimedia Commons
Hurricane Irma, which struck in 2017, cost $62.87 billion, making it one of the costliest hurricanes on record.

Hurricanes, floods, mudslides, the third series of ITV's "Love Island": 2017's turbulent summer has been captured in disturbing media headlines across the world that, taken as a whole, read like a contents page to the Old Testament.

It is particularly disturbing because the sheer scale of devastation wrought by such events  escapist reality TV shows aside  is expected to grow, with scientists and green commentators pointing to ever more credible links with the planet's rapidly warming climate.

Not that any of this has stopped political figures and media outlets from failing to connect these severe weather events with climate change, of course. U.S. Environmental Protection Agency (EPA) head Scott Pruitt suggested it was inappropriate to discuss possible climate change impacts amid recent devastating hurricanes, prompting even the pope to publicly encourage climate change skeptics to "go to the scientists and ask them."

Meanwhile, evidence of increasingly extreme weather continues to grow. On Friday, the U.S. National Oceanic and Atmospheric Administration (NOAA) released its latest climate data showing September was both warmer and drier than the average, despite the same month seeing hurricanes Irma and Maria hit parts of the U.S. and Caribbean still suffering the fall out of Hurricane Harvey.

In all, the September NOAA figures account for three hurricanes, three tornadoes, four severe storms, two floods, a drought, a freeze and several wildfires, and a year to date in the U.S. which has been both the third-warmest on record and the wettest on record for the nine-month period.

The cost of all this extreme weather is eye-watering, too. Since June, six additional weather and climate events affected the U.S. with costs exceeding $1 billion, adding up to a total of 15 separate billion-dollar weather and climate disasters for just the first nine months of the year, with hurricane season not yet finished. It puts 2017 so far on a par with 2011 as having the record number of costly events for this period, according to NOAA.

NOAA extreme weather

But even as the disasters rack up and the warning signs increasingly flash red, there are concerns not enough businesses, consumers and public bodies are adequately insured against extreme weather events.

Writing in the Oct. 9 Telegraph, Lloyd's Bank Chairman Bruce Carnegie-Brown argued that amid increasingly unpredictable and volatile weather across the world, insurance was more important than ever — yet many businesses and economies remain badly under-insured.

Reflecting on his first 100 days in the job and a summer of climate disasters across the U.S., Mexico and South Asia, he said Lloyd's usually paid out around $50 million in claims from its London offices, but that the past few weeks had been "anything but normal" and demonstrated how under-insured even wealthy economies such as the U.S. remain.

"These disasters remind us of our purpose at Lloyd's and in the wider insurance market, which is to help governments, communities and people recover more quickly from disaster, by providing them with the financial resources they need," he wrote.

Of course, adaptation, mitigation and prevention are the first line of defense and governments must be better prepared for climate impacts. That is why Tokyo, for example, has invested $2 billion since 2007 in underground anti-flood cisterns linked by tunnels as it readies to host the Olympic Games in 2020. But while the measure will go a long way to reducing risks posed to the world's most populous city by major flooding events, it does not negate the threat altogether.

Indeed, as the New York Times reported last week, the frequency and intensity of rainfall in the Japanese capital has increased significantly over the past 30 years due to global warming, and the city has been ranked by Swiss Re as the most risk-exposed metropolitan area in the world.

All of which serves to demonstrate that, alongside adaptation and mitigation, much more must be done by governments to promote the benefits of insurance in order to protect citizens and help communities rebuild after disasters, according to Carnegie-Brown.

He also argued political and trade factors are key to better insuring against climate risk. In a warning to some Brexiteers, Carnegie-Brown urged governments to continue supporting an open, global banking and insurance sector by resisting "the temptation to raise taxes and build protectionist walls around the free movement of insurance capital."

By allowing governments to export their risks, he claimed Lloyd's already had begun paying "hundreds of million to victims in the Caribbean and the U.S.," adding that the bank had paid out more than $90 million in claims over the last five years "and the great majority of these claims have been paid in support of disasters thousands of miles away."

Moreover, he called for more innovation in the banking sector to improve insurance products. "Insurance cannot be a substitute for the preparations necessary to mitigate the impact of these disasters," wrote Carnegie-Brown. "But insurance has a very valuable role to play in the rebuilding work."

Growing evidence suggests we are likely to face a marked increase in devastatingly volatile weather throughout the world, with the sums of money needed to both adapt and rebuild stacking up. Business, governments and consumers, it seems, could do worse than heed NOAA's and Lloyd's warnings on climate risk, and ensure they are prepared for the worst that nature might throw at them as temperatures warm.

This story first appeared on: 
Topics: