Climate change futures: health, ecological and economic dimensions

Climate sensitivity for small-scale events can be quite high. For example, for every increase in average temperatures
of 1°C we expect a 70% increase in air-to-ground lightning strikes (Reeve and Toumi 1999).
Personal Automobile Insurance: The impact of catastrophes on automobile losses began to become visible during
the 1980s and 1990s, but these understate the true extent of the losses because only those losses from catastrophic
events were tabulated in association with inclement weather. As the incidence of small storms increases,
roadway conditions can erode and there are more days with low visibility, icy conditions, and precipitation,
resulting in a steady increase of accidents.
Energy and Water Utility Systems: Increasingly extensive and interconnected energy and other systems
enhance the quality of life, but also increase society’s vulnerability to natural hazards (Sullivan 2003). Energy systems
are already experiencing rising losses. Under accelerated, non-linear climate change, there are increased
damages to energy and water industry infrastructure, including ruptured oil and electricity transmission systems due
to widespread permafrost melt throughout the northern latitudes, and risks to power plants. Increased extreme
weather events, such as ice storms and heat catastrophes, cause increased numbers of blackouts and water contamination
or direct damages to water plants.
The following are several examples of the nature of energy system sensitivities to extreme weather events
(Munich Re 2003):
• The US northeast Ice Storm of 1998 was the most expensive disaster in the history of the Canadian
insurance industry.
• In 1998, on the other side of the world in Auckland, New Zealand, the most severe heat wave since 1868
caused spikes in air-conditioning power demand and the overloading and subsequent collapse of two electricity
transmission cable lines.
• In 1999, a flash of lightning plunged more than 80 million people in Sao Paulo and Rio de Janeiro, and eight
other Brazilian states into darkness. Two years later, a prolonged drought — the worst in 70 years — led to a
national power crisis, with rationing lasting nearly nine months.
• In 1999, the great windstorms caused EU2.5 billion in damages to France’s largest electricity supplier.
• In 1982, a shortage of rain forced deep load shedding in Ghana. Impacts included business interruptions of
US $557 million at an aluminum smelter.
• In 1993, the Des Moines Water Works was shut down due to flooding. Direct property damages and emergency
measures were US $16 million, but the indirect business interruption losses resulted in 250,000 commercial
and residential customers being without water for 11 days.
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A particularly diverse set of risks apply in the electricity sector (Mills 2001). The current US baseline cost of electrical
outages of US $80 billion per year (LaCommare and Eto 2004) could double under our scenarios. In our scenarios,
businesses seek increasing business-interruption coverage for such events, and a larger share of consequent
losses is paid by insurers. In addition, increasingly frequent drought conditions result in power curtailments
that cause further business interruptions in regions heavily dependent on hydroelectric power. Drought plus unacceptably
higher cooling water temperatures in summer 2003 forced curtailments or closures of nuclear and other
thermal plants in France, Germany, Romania and Croatia and price spikes in addition (Reuters 2003, Guardian
2003). Massive oil-sector losses such as those caused by Hurricane Ivan (approximately US $2.5 billion, well in
excess of the year’s entire premium revenue for the sector) 5 (Miller 2004), would become more common.
Premiums for vulnerable oil infrastructure were projected to double after this event, and consumers faced higher
prices due to the 500,000 barrel per day supply shortfall (The Energy Daily 2004a). Emblematic of the industry’s
history of underestimating its exposures, a representative of Hiscox Syndicates in London stated that “the market
has had a much worse loss than ever anticipated.” Electric utilities were also hard hit, with one utility’s costs reaching
US $252 million (The Energy Daily 2004b).
5
Hurricane Ivan destroyed seven oil platforms, damaged six others as well as five drilling platforms, and pipelines were buried by underwater
mudslides in the Mississippi Delta. In Hurricanes Katrina and Rita, 109 off-shore oil rigs were destroyed and 31 severly damaged.