News > Wild weather costs insurance industry $27 billion dollars
Insurance is not the sexiest of subjects, but just like death and taxes, it is impossible to avoid in the modern world. We insure some things by choice, others by law and yet others without realising it because the policy's wrapped up in the small print. Its influence is everywhere, and according a new report, this influence is going to continue to grow as our climate becomes increasingly erratic.
In 2010, insurance companies around the world incurred around $27 billion of losses due to floods, storms, drought, and other extreme weather events. Traditionally insurance and reinsurance companies have priced their policies to this type of risk based on records of past events. However, there is growing evidence that suggests changes in our climate are increasing the frequency of extreme weather events. It may mean that past data is less reliable as a guide to the future than it once was.
The report, entitled 'Forecasting risk: the value of long-range forecasting for the insurance industry', was written by Matt Huddleston, Principal Consultant at the Met Office. It examines issues that the changing climate poses for managing exposure to weather-related risk. Dr Huddleston said: "Recent advances in research and improved technology suggest some phenomena can be forecast months or even further in advance, such as tropical storms in the Atlantic - an area of forecasting where the Met Office has seen improving levels of accuracy over the past few years."
Giving the insurance industry's view Trevor Maynard, Head of Exposure Management at Lloyd's, said: "Long-range forecasting methods and techniques should help risk experts and modellers refine their modelling practices and will play a growing role in the insurance market, particularly as the impacts of climate change are increasingly felt."
Dr Huddleston continued: "Insurance is one of the main tools that businesses and communities have to protect themselves from catastrophic events and build resilience. This report shows that the insurance industry may increasingly benefit from the use of long-range predictions - especially in a changing climate where the past may not represent the future".
So in the contest between the ever changing climate and the world climate modellers, it seems that the modellers are putting up a good fight. Of course the ability to predict extreme weather is one thing, dealing with it is another thing altogether. This is where insurance comes in, someone has to help pay for the damage so there will always be a need for coverage. Hopefully better forecasting means it will become a little bit cheaper to arrange. The report is available from the Lloyd's website.