12.4.10 Property insurance

Insurance systems differ widely between countries (e.g., in many countries flood damage is not insured) and this affects the vulnerability of property to climate change. The value of property at risk also varies between countries. The damage from a wind speed of 200 km/h varies from 0.2% of the value of insured property in Austria, to around 1.2% in Denmark (Munich Re, 2002). While insurers are able in principle to adapt quickly to new risks such as climate change, the uncertainty of future climate impacts has made it difficult for them to respond to this new threat.

The uncertainty of future climate as well as socio-economic factors leads to a wide range of estimates for the costs of future flood damage. For instance, annual river flood damage in the UK is expected to increase by the 2080s between less than twice the current level of damages under the B2 scenario to greater than twenty times more under the A1 scenario (ABI, 2004). Moreover, future insurance costs will rise significantly if current rare events become more common. This is because the costs of infrequent catastrophic events are much higher than more frequent events, e.g., in the UK, the cost of a 1000-year extreme climate event is roughly 2.5 times larger than the cost of a 100-year event (Swiss Re, 2000), and in Germany, insurance claims increase as the cube of maximum wind speed (Klawa and Ulbrich, 2003).