This section examines the sensitivity, vulnerability, and adaptability of private- and public-sector insurance to climate change. Activities within these segments are significantly interrelated, and the role of each varies widely from country to country and over time (Van Schoubroeck, 1997; Ryland, 2000). Government programs exist primarily to correct market failures in the private sector, when insurance cannot be provided at a reasonable rate, or when insufficient capacity exists to pay claims (Mittler, 1992). In addition, the nature of events anticipated under climate change (e.g., increased flooding) draws into question their very insurability by private companies (Denenberg, 1964; Mittler, 1992; White and Etkin, 1997; Hausmann, 1998; Kunreuther, 1998; Nuttall, 1998).

Insurers are sensitive to a diversity of potential climate changes (Ross, 2000). Understanding and adapting to weather-related losses are high priorities in the insurance industry. Loss growth has resulted in the absence of commercial insurance for the most vulnerable risks, such as flood or crop damage in many countries. Changes in weather-related events associated with global climate change would increase the sector's vulnerability (Vellinga and Tol, 1993; Changnon et al., 2000; TAR WGI Chapters 9 and 10). Recent history has shown that weather-related losses can stress insurance firms to the point of elevated prices, withdrawal of coverage, and insolvency (bankruptcy).

The private insurance sector is highly heterogeneous, and the penetration of insurance varies dramatically across regions and within countries, as does the exposure and vulnerability of human populations and property to natural disaster events. Analyses that are meaningful to local policymakers, governments, and economies must adopt a variety of perspectives: regional, state, municipality, company, and the growing number who are self-insured.

Based on observations over the past decade, the property/casualty (P/C) segment is more vulnerable to weather-related events than the life/health segment (Table 8-2). The P/C segment is extremely diverse. The single most vulnerable branch appears to be property insurance, including business interruption (Bowers, 1998). Other lines, such as personal automobile insurance, have more limited exposure.

Of 8,820 loss events analyzed worldwide by Munich Re between 1985 and 1999, 85% were weather related, as were 75% of the economic losses and 87% of the insured losses (Munich Re, 1999b, 2000). The weather-related share of total losses is as high as 100% in Africa and 98% in Europe. Global weather-related insurance losses from large events² have escalated from a negligible level in the 1950s to an average of US$9.2 billion yr-¹ in the 1990s (Figure 8-1)—13.6-fold for the 1960-1999 period for which detailed data are available. Insurance losses have grown significantly faster than total economic losses and insurance reserves and assets (i.e., adaptive capacity). Since the 1950s, the decadal number of catastrophic weather-related events experienced by the insurance sector has grown 5.5-fold.
These trends would be exacerbated by increased vulnerability resulting from development of high-hazard zones and increasingly sensitive infrastructure (Swiss Re, 1998a; Hooke, 2000; see Chapter 4).

Insurers have differing views on climate change (Mills et al., 2001). Although several insurers have devoted significant attention to the issue (especially in Europe and Asia), the vast majority have given it little visible consideration. Some have taken definitive precautionary positions in stating that there is a material threat (Swiss Re, 1994; UNEP, 1995, 1996; Jakobi, 1996; Nutter, 1996; Zeng and Kelly, 1997; Berz, 1999; Bruce et al., 1999; Munich Re, 1999b; Storebrand, 2000), whereas others have taken a different view (Mooney, 1998; Unnewehr, 1999). Some have elected to focus on disaster preparedness; others have adopted a "wait-and-see" stance.

Table 8-2: Distribution of the global insurance market, including life/health and property/casualty, by region (Swiss Re, 1999b). Note that weightings between property/casualty and life/health vary considerably among countries. Swiss Re (1999b) provides detailed information by country. In some cases (e.g., Japan), life insurance premiums include annuities, which eventually are reimbursed to the insured.
Total Business	Premiums in 1998 (US$M)	Share of World Market in 1998 (%)	Premiums as % of GDP in 1998	Premiums per capita in 1998 (US$)	Property/Casualty Premiums as % of Total
America	817,858	38.0	7.7	1,021	54
- North America	779,593	36.2	9.0	2,592	53
- Latin America	38,265	1.8	2.0	77	72
Europe	699,474	32.5	6.9	614	42
- Western Eurpe	684,848	31.8	7.3	1,466	42
- Central/Eastern Europe	14,626	0.7	2.1	23	75
Asia	571,272	26.5	7.8	36	23
- Japan	453,093	21.0	11.7	3,584	20
- South and East Asia	107,430	5.0	3.8	34	31
- Middle East	10,749	0.5	1.7	42	67
Africa	28,792	1.3	4.8	36	25
Oceania	37,872	1.8	9.4	1,378	41
World	2,155,269	100.0	7.4	271	41
- Industrialized countriesa	1,955,406	90.7	8.8	2,132	41
- Emerging marketsb	199,863	9.3	3.0	37	43
OECDc	2,016,084	93.5	8.5	1,805	41
G7d	1,725,007	80.0	8.9	2,498	41
EUe	672,939	31.2	7.4	1,651	40
NAFTAf	785,901	36.5	8.3	1,960	53
ASEANg	11,711	0.5	2.6	26	42
a North America, Western Europe, Japan, Oceania. b Latin America and Caribean, Central and Western Europe, South and East Asia, Middle East, Africa. c 29 members. d USA, Canada, UK, Germany, France, Italy, Japan. e 15 members. f USA, Canada, Mexico. g Singapore, Malaysia, Thailand, Indonesia, The Philippines, Vietnam; the three remaining members—Brunei, Laos, and Myanmar—are not included.

IPCC Homepage