London scoping - ukcip

7.5 Insurance
Final Report
169
7.5.1 Context
The London based insurance industry comprises approximately 90% of the total UK
employment in the industry, (about 300,000), contributing 1.4% of UK GDP. The UK
Insurance market is the third-largest in the world and contributes around £8 billion a year to UK
overseas earnings, reflecting a broad exposure in global economic activities. The London
Market’s Gross Premium Income was £17.734 billion in 2000. Insurance companies are the
largest domestic owners of UK shares - owning 21% of UK ordinary shares. This compares
with 18% held by company pension funds, 2% by unit trusts, and just over 1% by banks. The
UK insurance industry in 2000 held £796.5 billion worth of assets globally.
The UKCIP Scoping Study for the South East of England describes in general terms how the
UK based insurance industry is likely to be impacted by climate change in the UK. The study
notes that since “many activities within the insurance sector are weather sensitive, the industry
has developed wide experience and understanding of how weather conditions impact on its
operations. These include claims associated with severe short term events including rain and
windstorms, freezing weather and longer term events such as hot, dry spells the latter increasing
building susceptibility to subsidence”.
Dlugolecki, in Chartered Institute of Insurers (CII) (2001) generalises the interaction between
insurance and climate change as illustrated in Figure 7.1 below.
Figure 7.1 Life and non-life insurance activities and climate change
BRANCH
Life insurance
Non-life
assurance
DRIVERS
Population
Diseasevectors
Weather
Climate effects
PRODUCTS
Life assurance
Pensions
Savings
Investments
Mortgages
Property and
other general
insurances
Bonds
CLIMATE
EFFECTS
Health
Loss of life
Equity
devalued
Claims
The diagram shows that the core activities of insurance companies are likely to be impacted by
climate change either by changes in risk transfer arrangements, changing vulnerabilities of
financial and non-financial assets held, and wider economic changes. The different types of
climate change impacts most likely to be important to the London insurance market are
discussed in more detail below.
7.5.2 Flooding and Rainfall Intensity Impacts
As noted elsewhere in this report, London is exposed to far greater potential damage from
flooding than any other urban area in the UK. This is due to the scale of the city and the fact