Climate change futures: health, ecological and economic dimensions

(also known as “cash-flow underwriting”). As occurredafter 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” impactsin the broader financial markets. Outcomes are particularlybad in years when large catastrophe losses coincidewith financial market downturns.Most significantly impacted are insurance operations inthe developing world and economies in transition (theprimary growth markets for insurance — see figure3.4), already generating nearly US $400 billion/yearin premiums. This arises from a combination of inferiordisaster preparedness and recovery capacity, morevulnerable infrastructure due to the lack or non-enforcementof building codes, high dependency on coastaland agricultural economic activities, and a shortage offunds to invest in disaster-resilient adaptation projects(Mills 2004). Insurers from industrialized countriesincreasingly share these losses via their growingexpansion into these emerging markets.In the face of the aforementioned trends, insurers usetraditional methods to reduce their exposures:increased premiums and deductibles, lowered limits,non-renewals, and new exclusions. While consumerFigure 3.4Non-life insurance25%Life insurance25%avg. 13.3%20%20%15%10%5%0%-5%8082Emerging markets84Industrialized countriesInsurance in emerging and industrialized markets.Source: Swiss Re 2000, sigma 4/20008688909294avg. 7.2%avg. 3.2%969815%10%5%0%-5% 80 82Emerging markets8486avg. 6.7%88 90 92 94 96 98Industrialized countries99 | FINANCIAL IMPLICATIONSFigure 3.5Non-life insuranceLife insuranceAsiaAsiaLatin AmericaLatin AmericaCentral and Eastern EuropeCentral and Eastern Europe20% 40% 60% 80% 100%20% 40% 60% 80% 100%Foreign majority shareholdingForeign minority shareholdingForeign participation in ownership is important in the insurance marketSource: Swiss Re 2000, sigma 4/2000