Working Group II: Impacts, Adaptation and Vulnerability


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8.3. Private and Public Insurance

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.
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