Climate change futures: health, ecological and economic dimensions

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(also known as “cash-flow underwriting”). As occurred after the European windstorms of 1999 (ABI 2004), insurers encounter liquidity problems when paying losses, forcing the sale of large blocks of securities, which, in turn, creates undesirable “knock-on” impacts in the broader financial markets. Outcomes are particularly bad in years when large catastrophe losses coincide with financial market downturns. Most significantly impacted are insurance operations in the developing world and economies in transition (the primary growth markets for insurance — see figure 3.4), already generating nearly US $400 billion/year in premiums. This arises from a combination of inferior disaster preparedness and recovery capacity, more vulnerable infrastructure due to the lack or non-enforcement of building codes, high dependency on coastal and agricultural economic activities, and a shortage of funds to invest in disaster-resilient adaptation projects (Mills 2004). Insurers from industrialized countries increasingly share these losses via their growing expansion into these emerging markets. In the face of the aforementioned trends, insurers use traditional methods to reduce their exposures: increased premiums and deductibles, lowered limits, non-renewals, and new exclusions. While consumer Figure 3.4 Non-life insurance 25% Life insurance 25% avg. 13.3% 20% 20% 15% 10% 5% 0% -5% 80 82 Emerging markets 84 Industrialized countries Insurance in emerging and industrialized markets. Source: Swiss Re 2000, sigma 4/2000 86 88 90 92 94 avg. 7.2% avg. 3.2% 96 98 15% 10% 5% 0% -5% 80 82 Emerging markets 84 86 avg. 6.7% 88 90 92 94 96 98 Industrialized countries 99 | FINANCIAL IMPLICATIONS Figure 3.5 Non-life insurance Life insurance Asia Asia Latin America Latin America Central and Eastern Europe Central and Eastern Europe 20% 40% 60% 80% 100% 20% 40% 60% 80% 100% Foreign majority shareholding Foreign minority shareholding Foreign participation in ownership is important in the insurance market Source: Swiss Re 2000, sigma 4/2000
100 | FINANCIAL IMPLICATIONS demand for insurance increases at first, it evolves into reduced willingness to pay and some shift from the use of insurance to alternatives such as weather derivatives. As warned by the US Government Accountability Office (GAO 2005), private insurers encounter increasing difficulty in handling extreme weather events. As commercial insurability declines, demands emerge to expand existing government-provided insurance for flood and crop loss, and to assume new risks (for example, for wildfires and windstorms). Cashstrapped governments, however, find that claims interfere with balancing their budgets (Changnon 2003) and, in turn, limit their coverage, with the result that more ultimate losses are shifted back to the individuals and businesses impacted by climate change. Compounding the problem, international aid for natural disasters continues its current decline as a percentage of donor country GDP (Mills 2004). Climate change accelerates several forms of unrelated adverse structural change already underway in the insurance industry. 6 This manifests as a rise in competition among insurers, significant consolidation due to the reduced viability of small firms, increased risk exposure via globalization and a growing proportion of competing self-insurance and alternative risk transfer mechanisms. CCF-II: SURPRISE IMPACTS A shift from gradual to non-linear impacts of climate change serves to intensify the adverse effects of CCF-I. Disruptions are greater and the economic cost of natural catastrophes rises at an increasing rate, with elevated stress on insurers and reinsurers. This scenario is also fundamentally different for insurers insofar as CCF-I entails relatively predictable changes that can (to a degree) be adjusted to, whereas CCF-II involves a substantial increase in impacts and uncertainty, significant challenges to the actuarial processes that underpin the insurance business. Life and health impacts are particularly amplified in comparison to the outcomes in CCF-I. Extreme heat catastrophes become more common. Events on a par with that seen in Europe in the summer of 2003 come to the US with the result that offensive air masses of unprecedented length range from almost 200% to over 400% above average. Intensities also exceed the hottest summers over the past 60 years by a significant margin. All-time records for maximum and high minimum temperature are broken in large numbers of cities, with corresponding death rates five times that previously seen in typical summers. Aside from mortalities, hospitalizations tax hospital resources in emergency room(s) already hit hard by constrained budgets. Also due, in part, to temperature increases, the current trend towards increasingly damaging wildfires continues. Both a cause and impact of climate change, more fires set intentionally to clear forests and create grazing land in the developing world grow out of control (due to climate-change droughts and high winds). Such associated events caused an estimated US $9.3 billion in economic damages in 1997 (CNN 2005). Another bad year in 2005 forced the closures of Kuala Lumpur’s largest harbor and most other businesses and manufacturing plants, as well as disruption to tourism. A continuation of the trend results in a combination of insured losses, with causes ranging from an upturn in respiratory disease to widespread business interruptions. Included in the impacts are well-insured offshore industries, based in industrialized countries. The combination of more aeroallergens, rising temperatures, greater humidity, more wildfire smoke, and more dust and particulates considerably exacerbates upper respiratory disease (rhinitis, conjunctivitis, sinusitis), lower respiratory disease and cardiovascular disease. Cases of asthma increase sharply. A 30% increase in cases would occur, raising the total to about 400 million new cases per year by 2025. The baseline cost was US $13 billion/year in the US alone as of the mid-1990s (half of which are direct health care costs). If a 30% increase took place in the US, the incremental cost of US $4 billion/year would be on a par with that of a very large hurricane each year. With a continued rise in atmospheric CO2 concentrations and early arrival of spring, a significant jump in winter and summer warming (for example, from accelerated release of methane), is accompanied by a stepwise advance in the hydrological cycle, and ensuing growth of weeds, pollen and molds. Additionally, dust 6 Even in wealthy nations, governments are increasingly seeking to limit their financial exposures to natural disasters. As a case in point, the risk of residential flooding in the US is deemed largely uninsurable, which has given rise to a National Flood Insurance Program (NFIP), with more than 4.2 million policies in force, representing nearly US $560 billion in coverage. The NFIP pays no more than US $250,000 per loss per household and US $500,000 for small businesses.
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Climate Change Futures Health, Ecol
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Published by: The Center for Health
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PREAMBLE Hurricane Katrina 4 | PREA
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6 | EXECUTIVE SUMMARY With this in
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8 | EXECUTIVE SUMMARY Other non-lin
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THE CASE STUDIES IN BRIEF Floods in
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12 | EXECUTIVE SUMMARY THE CCF PROJ
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PART I: The Climate Context Today
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(see McCarthy et al. 2001). As glac
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Table 1.1 Extreme Weather Events an
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DISCONTINUITIES CLIVAR, Climate Var
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Figure 1.6 The Frequency of Weather
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Figure 1.7 Trends in Events, Losses
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• Thawing of permafrost (permanen
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CCF-II: GRADUAL WARMING WITH INCREA
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PART II: Case Studies
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CLIMATE CHANGE AND EMERGING INFECTI
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HEALTH IMPACTS Malaria is character
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Figure 2.5 Brazil N Brazil COLOMBIA
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estimates (over and above current a
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SPECIFIC RECOMMENDATIONS Preventing
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262 deaths in 2003; 7,470 cases and
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98% of the two-year life cycle take
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The rise in minimum temperature res
Page 50 and 51: While the role of allergen exposure
Page 52 and 53: AIR QUALITY AND CLIMATE CHANGE ISSU
Page 54 and 55: EXTREME WEATHER EVENTS 1984 and 199
Page 56 and 57: HEALTH AND ECOLOGICAL IMPACTS Heat
Page 58 and 59: Figure 2.20 Projected Excess Deaths
Page 60 and 61: THE ROLE OF CLIMATE Australia exper
Page 62 and 63: Service). Since 2002, severe floods
Page 64 and 65: Table 2.1 Economic Losses in Europe
Page 66 and 67: NATURAL AND MANAGED SYSTEMS adelgid
Page 68 and 69: created unstable conditions conduci
Page 70 and 71: Climate research has already identi
Page 72 and 73: LOSSES ASSOCIATED WITH 1993 HEAVY P
Page 74 and 75: Figure 2.28 Soybean Rust Introducti
Page 76 and 77: Table 2.3 Extreme Weather Events Ca
Page 78 and 79: General measures to reduce the impa
Page 80 and 81: Physiological stresses on reef orga
Page 82 and 83: There are many questions concerning
Page 84 and 85: • Terminating practices that dest
Page 86 and 87: ecome contaminated with viruses and
Page 88 and 89: In 2001 the IPCC fully recognized t
Page 90 and 91: While seawater desalinization is cu
Page 92 and 93: PART III: Financial Implications, S
Page 94 and 95: Figure 3.1 Reinsurance Prices Are H
Page 96 and 97: RISK SPREADING IN DEVELOPED AND DEV
Page 98 and 99: THE LIMITS OF INSURABILITY Not all
Page 102 and 103: from areas plagued by persistent dr
Page 104 and 105: Engagement of the insurance industr
Page 106 and 107: Industry observers point out that p
Page 108 and 109: CONCLUSIONS AND RECOMMENDATIONS Jus
Page 110 and 111: FINANCIAL INSTRUMENTS Regulators an
Page 112 and 113: of carbon-risk hedging products, su
Page 114 and 115: Summary Table of Extreme Weather Ev
Page 116 and 117: Table B.1 Summer Percentage Frequen
Page 118 and 119: Climate sensitivity for small-scale
Page 120 and 121: diffuse and do not manifest in sing
Page 122 and 123: APPENDIX D. LIST OF PARTICIPANTS AT
Page 124: Carmenza Robledo Gruppe Oekologie E
Page 127 and 128: 126 | BIBLIOGRAPHY Bibliography AAA
Page 129 and 130: 128 | BIBLIOGRAPHY Chordas, L. Epid
Page 131 and 132: Ford, S.E. & Tripp, M.R. Diseases a
Page 133 and 134: 132 | BIBLIOGRAPHY Kalkstein, L. S.
Page 135 and 136: 134 | BIBLIOGRAPHY Mills, E. The in
Page 137 and 138: 136 | BIBLIOGRAPHY Rose, J. B., Eps
Page 139 and 140: 138 | BIBLIOGRAPHY Vandyk, J. K., B
Page 142: Infectious and Respiratory Diseases
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Climate change futures: health, ecological and economic dimensions

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