Weather and Natural Disasters

Lloyd’s warns on climate change impact

Lloyd's of London called on the insurance industry to factor climate change into risk models on Thursday, adding its voice to those demanding the economic impact of extreme weather be taken seriously.

For the first time, the global insurance market said the industry should consider climate change as a result of increasing greenhouse gas concentrations in the atmosphere. Lloyd's suggested that models used to analyze and measure risk be revised annually to ensure they reflect changing weather patterns.

"Climate change is having a direct impact on the business community and the bottom line. That is an important point—it not an environmental subject, it is an economic subject," Trevor Maynard, head of exposure management at Lloyd's, told CNBC this week.

Three vehicles crashed into a creek close after the road washed out from beneath them in Broomfield Colorado, September 12, 2013.
Andy Cross | The Denver Post | Getty Images

The insurance industry has suffered major losses in recent years due to extreme weather catastrophes. In 2011—viewed as a record year—insured losses cost the industry more than $126 billion with $35 billion in losses from Superstorm Sandy alone, according to Lloyd's.

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Maynard said severe weather events were increasing as a result of climate change—which he insisted was taking place, and was man-made.

"Changes in the climate and weather patterns have the potential to affect extreme weather events," he said in a Lloyd's report on the topic published on Thursday.

"Frequency of heat waves has increased in Europe, Asia and Australia, and more regions show an increase in the number of heavy precipitation events, than a decrease. Regionally, it is virtually certain that since the 1970s there has been an increase in the frequency and intensity of the strongest tropical cyclones in the North Atlantic basin."

Why investors need to know about climate change
Why investors need to know about climate change

Maynard said that the probability of severe floods, like those suffered in the U.K. at the start of the year, could be 40 percent more likely due to rising sea levels and temperature as a result of climate change. By the 2080s, Lloyd's projects there could be around three times as many days each winter with heavy rainfall (defined as more than 25 millimeters in a day).

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Lloyd's report came in the same week that the Organisation for Economic Co-operation and Development warned of escalating global costs from natural and man-made disasters, including those stemming from climate change. It estimated that earthquakes, social unrest, industrial accidents, terror attacks, pandemics and other disruptive events have cost advanced and emerging nations around $1.5 trillion in damages and economic losses over the last decade, more than double what they cost in the previous 10 years.

Buffett: Climate change has had no effect on insurance market
Buffett: Climate change has had no effect on insurance market

The United Nations has also warned about countries failing to prepare sufficiently for an increase in the number and severity of extreme weather events.

On Tuesday, a report from the U.S.'s National Climate Assessment warned that the bill for decades of unchecked carbon emissions was due.

"Climate change, once considered an issue for a distant future, has moved firmly into the present," the report said.

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