Climate Change and Insurance Chartered Institute of Insurers
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T H E C H A R T E R E D INSURANCE INSTITUTE RESEARCH REPORT Climate change and insurance Contents Contents Background to the report ii Terms of reference iii Group members iv Acknowledgements vii Executive summary viii Section I Introduction Chapter 1: Introduction, Andrew Dlugolecki 1 Chapter 2: Developments since 1994, Tim Walker 4 Chapter 3: The climate system and its implications for the UK, David Viner & Maureen Agnew 15 Section II Customers Chapter 4: Recreation and tourism, Neil Kelly 27 Chapter 5: The construction industry, John Walden 35 Chapter 6: Energy and water industries, Mike Cooper 46 Chapter 7: Property insurance, Richard Radevsky, David Crichton & Thomas Loster 54 Section III Corporate policy Introduction, Julian Salt Chapter 8: Investment policies of insurance companies, Julian Salt 71 Chapter 9: Environmental policies of insurance companies, Julian Salt 81 Section IV Conclusions Chapter 10: General strategies, Andrew Dlugolecki 88 Chapter 11: Action plan, Research Group 97 Appendices 2.1 Climate change questionnaire 99 2.2 Analysis of survey results 101 3.1 Four qualitative climate change threshold scenarios for the UK 109 4.1 Effects of climate change on leisure activities 111 4.2 Golf World survey 112 4.3 Case studies, Golf World, August 2000 113 7.1 Faster form 114 7.2 Insurance template for planning authorities 118 7.3 Extract from the Insurance template for a local government flood policy 119 8.1 List of insurance companies that responded to the survey of annual reports 122 9.1 FTSE–BiE listing of financial companies 123 9.2 Survey of insurance companies 124 References and bibliography 126 Glossary 130 i Background to the report The current study is deeper and wider than the previous BACKGROUND TO THE study as more emphasis has been placed on some key REPORT customer sectors (tourism, construction, utilities, property) to explore the implications of climate change In 1994, the Society of Fellows of the Chartered on them in more detail. Secondly the scope has also been Insurance Institute published a research report entitled widened beyond simply property damage, as there are ‘The impact of changing weather patterns on property significant issues for insurers to consider in the areas of insurance’, which was written by a volunteer group of environmental and investment policy. members. The report identified a number of issues and proposed a range of actions to deal with them. It also To make the report accessible to a wide audience, the proposed that the subject should be revisited in five minimum of technical language has been used. As far as years’ time. This report is the response to that possible in this little-researched field, useful references recommendation. to other research have been identified and are listed in the bibliography. As with the previous report, a call for volunteers was made and a group was established under the leadership Following the1990 storms the UK had a relatively kind of the previous chairman, with further members co- decade, which led to some relaxation of attention, but opted to ensure the necessary breadth of expertise, the extreme weather in autumn 2000 has broken this particularly in meteorological science. The group met spell. Many other countries too have experienced record four times between April and November 2000 to plan losses recently, often without the support of a modern the research and review progress. A number of experts insurance system. There is still much to be done to were interviewed face to face or by telephone. The address the issues thoroughly, and we hope that this group also scanned the literature and participated in study will assist others faced with that task. other climate-related activities. The CII, as the leading professional body for the A questionnaire very similar to one used in the 1994 insurance sector, provides a range of qualifications and study was distributed to all members of the CII to examinations as well as training programmes. It also has establish the current opinions held by insurance a 74-strong network of local institutes that support and practitioners. The replies were valuable in considering promote its qualifications, and links with affiliated whether the industry’s perceptions had changed, and institutes globally. With over 60,000 members it is also helped to direct the proposals for action in the ideally placed to facilitate the research that has gone current study. into this report. To examine all the implications of climate change for The Society of Fellows was set up in 1986 and is an the insurance market would be a gigantic exercise, well integral part of the CII. It represents the interests of all beyond the available resources. To achieve something chartered titleholders—those holding a Chartered meaningful, the group focused primarily on the UK Insurer or Chartered Insurance Practitioner title, who general insurance (ie, property/casualty) market, with will also be Associates (ACII) or Fellows (FCII) of the only limited consideration of non-UK developments. CII. ii Terms of reference managements should respond. This should include TERMS OF REFERENCE views on • criteria for business acceptability/acceptance The group is asked to pay particular attention to the • pricing—measurement of future hazard management issues that face the insurance industry frequency/severity arising from climate change (rather than to examine • risk differentiation—basis of assessment detailed procedural issues). • co-operation between insurers Consideration should include indirect impacts (eg, • reinsurance/other means of spreading risk investment and environmental policy) as well as direct • market capacity —continued availability ones (eg, storm damage). The international • loss prevention/reduction—the roles of insurers, repercussions for the UK insurance industry should be government (eg, flood defences), insured, planners, borne in mind. The study should exclude the marine, life designers/architects and pensions markets, focusing on general • education (property/casualty) insurance. • repercussions for other industries, the public and the authorities arising from the insurance industry’s The group should adopt as its starting point the 1994 response CII Society of Fellows’ study ‘The impact of changing • corporate environmental policy in the light of weather patterns on property insurance’, together with climate change subsequent official publications on climate change by • guidelines for investment practitioners HM Government and the Intergovernmental Panel on • institutional arrangements to improve the speed and Climate Change (IPCC), and concentrate on how efficiency of adaptation to climate change. iii Group members the UK and the USA. He has held a number of senior GROUP MEMBERS underwriting and management roles with major international insurers, most recently as group Throughout the report the term ‘the group’ refers to the underwriting manager—general insurance development, opinions of the following research group. The for CGU. He has considerable experience of global membership of the group comprised: insurance arrangements for multinational companies. Andrew Dlugolecki, BSc, MA, PhD, FCII, Mike P. Cooper FRMetS CGNU Dr Andrew Dlugolecki joined General Accident as a 21st Floor, St Helens statistician in 1973. He soon realised that pricing 1 Undershaft London EC3P 3DQ decisions required consideration of the impact of weather on claims! He has held a variety of senior management positions at General Accident and through David Crichton, MA, FCII subsequent mergers in CGU and CGNU before retiring Chartered Insurance Practitioner in December 2000. Professor David Crichton is an economist with some 28 years’ experience in the insurance industry. He is Since the late 1980s he has become one of the leading environmental consultant to the Association of British experts on insurance and climate change, and has served Insurers, and a member of the Natural Environment on major official UK and UN (IPCC) projects dealing Research Council’s Earth Observation Expert Group. with the issue. He chaired the previous and current CII He is an honorary visiting professor at Middlesex Society of Fellows research groups on the topic, and is a University Flood Hazard Research Centre, and an member of the Board of the Tyndall Centre for Climate honorary research fellow at the University of Dundee. Change Impacts Research. He is a member of the Research Sub-committee of the Dr Andrew Dlugolecki Building Standards Advisory Council in Scotland, and Earlybank represents the ABI on Scottish Flood Appraisal Groups 17 Craigie Place and on the United Nations’ UK–ISDR initiative. Perth, Scotland PH2 0BB Professor Crichton was asked to give written and oral e-mail: [email protected] evidence on the insurance impacts of climate change to the House of Commons Select Committee on Climate Maureen Agnew, PhD Change in March 1999. Dr Maureen Agnew has been a senior research associate employed in the School of Environmental Sciences, Professor David Crichton University of East Anglia, Norwich, since 1996. Her 1 Quarryknowe Crescent Inchture main interests are in the area of climate variability and Perthshire PH14 9RH change with particular reference to climate impacts on Tel/fax 01828 686 493 natural, social and economic systems. She has developed [email protected] a broad portfolio of research publications in the impact areas of retailing, tourism, insurance and health. Neil Kelly, FCII, FCILA, FUEDI-ELAE, Dr Maureen Agnew Chartered Insurance Practitioner Climatic Research Unit Neil Kelly has been a chartered loss adjuster since 1960, University of East Anglia with considerable ‘hands on’ experience of investigating Norwich, Norfolk NR4 7TJ Tel: 01509 260799/223012 and mitigating losses attributable to man-made and e-mail: [email protected] natural disasters. He has written a variety of articles and other works on weather hazards and catastrophe Mike Cooper planning. Mike Cooper has over 30 years’ experience in the Neil is a former CEO of Thomas Howell Group (UK) insurance industry and during that time has worked in and a past president of the Chartered Institute of Loss iv Group members Adjusters.