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Home Climate & Society

Rising Premiums Due to Severe Weather Could ‘Threaten Social Order’, Insurers Warn

March 27, 2019
Reading time: 2 minutes

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The world’s biggest reinsurer, Munich Re, is warning that climate change may soon turn rising insurance costs into a pressing social issue, as more frequent, severe weather puts rates beyond the reach of most households.

“If the risk from wildfires, flooding, storms, or hail is increasing, then the only sustainable option we have is to adjust our risk prices accordingly. In the long run it might become a social issue,” said Chief Climatologist Ernst Rauch, after the company published a report blaming global warming for US$24 billion in losses due to California wildfires. “Affordability is so critical [because] some people on low and average incomes in some regions will no longer be able to buy insurance.”

The Munich Re study looked at the state’s 20 worst wildfires since the 1930s, The Guardian reports. It concluded that most of them have occurred since the turn of the century, driven by abnormally high summer temperatures, “exceptional dryness” between May and October, and wetter, more humid winters that spurred new forest growth that then became the tinder-dry kindling for fires.

“After comparing observational data spanning several decades with climate models, the report concluded that the wildfires, which killed 85 people, were ‘broadly consistent with climate change’,” The Guardian writes.

The resulting increases in premiums could become a risk to social order, said Nicolas Jeanmart, the head of personal and general insurance and macroeconomics at Insurance Europe, which speaks for 34 national associations.

“The sector is concerned that continuing global increases in temperature could make it increasingly difficult to offer the affordable financial protection that people deserve, and that modern society requires to function properly,” he told The Guardian.

The paper notes that “no insurer has linked wildfires to climate change before, although a Lloyds report into Superstorm Sandy in 2014 found that global warming-linked sea level rises had increased surge losses around Manhattan by 30%.” So far, “climate scientists say that linking extreme weather events to climate change is akin to attributing the performance of a steroid-taking sportsman to drug use—the connections are clearer in patterns than in individual disasters.”

“In general, one can’t prove that a single event is the result of climate change, but it is likely to cause more such events of greater severity,” agreed former Bank of England climate change coordinator Paul Fisher. “It is very interesting if insurers conclude that climate change was a significant contributory factor to the event, and will make the insurance companies think carefully about the pricing and availability of similar insurance policies.” Dr .Ben Caldecott, the director of the sustainable finance program at Oxford University, added that  “company directors and fiduciaries will ultimately be held responsible for avoidable climate-related damages and losses and urgently need to up their game to avoid litigation and liability.” The Guardian notes that Munich Re has divested its major holdings in thermal coal, but still invests in oil and gas.



in Climate & Society, Climate Impacts & Adaptation, Community Climate Finance, Drought, Famine & Wildfires, Energy / Carbon Pricing & Economics, International Agencies & Studies, Legal & Regulatory, Severe Storms & Flooding

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