Canadian Underwriter

Warm… but no longer cosy

October 2, 2021   by Greg Meckbach, Associate Editor

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A major report on climate change released this summer does not put a dollar figure on potential future property loss but does indicate a large and looming threat, experts agree.

The report, released Aug. 9 by a working group of the Intergovernmental Panel on Climate Change (IPCC), concludes that the emission of greenhouse gases from human activities is responsible for about 1.1°C of warming since the period of 1850 to 1900. Averaged over the next 20 years, global temperature is expected to reach or exceed 1.5°C of warming since that period.

“Given all of the increasing patterns — things like heavy precipitation, more intense hurricanes or tropical cyclones, and coastal flooding — with every incremental increase in our greenhouse gas emissions, what that really does is increase the extreme events,” said Laura Twidle, managing director of Toronto-based Catastrophe Indices and Quantification Inc. (CatIQ), which provides data on Canadian catastrophes to the P&C industry.

The IPCC’s report, Climate Change 2021: the Physical Science Basis, is its sixth such assessment on climate change. It outlines a number of implications for North America, including a change in precipitation patterns, with more intense rainfall and associated flooding, particularly for eastern North America, as well as more severe droughts in many regions.

The IPCC, which aims to assess available scientific data on climate change, is a panel of 195 governments. In its 2021 report, IPCC warns that global warming is likely to lead to an increase in wildfires in central North America.

“We are able to increase our confidence around the attribution of specific events to climate change, particularly wildfires and drought,” said Craig Stewart, vice president of federal affairs for the Insurance Bureau of Canada.

Canadian Underwriter asked industry experts what insights P&C insurers and reinsurers might be able to draw.

“I found the report to be largely affirmation or confirmatory, relative to what we already know. For those who follow the file closely, at least at the level of Canada, I did not see anything that really surprised me,” said Blair Feltmate, head of the Intact Centre on Climate Adaptation, part of the University of Waterloo’s environmental faculty.

“It is important to put frequency and severity of storm activity into the insurance context. Does this mean that there could be greater impact on the insurance industry? I’ve got to believe so,” said Tom Johansmeyer, Bermuda-based head of PCS at ISO Claims Analytics, a division of Verisk Analytics Inc., that provides data on insured losses following catastrophes.

“If more stuff is happening and more of that stuff is getting bigger, then yeah, I’m going to pay a lot more attention. If I have risk capital deployed, I am definitely going to be thinking about how to manage that risk capital,” he said.

But Johansmeyer cautioned against trying to use data on industry-wide losses from major catastrophes as a tool for climate-change analysis. In early 2021, IBC provided data on what it calls “major multiple-payment occurrences,” including totals from 1983 through 2019.

From 1983 through 2009, there were 12 years in which the total annual cost to the industry from “natural disasters — major multiple-payment occurrences” was above $1 billion, adjusted for inflation. In the 10 years from 2010 through 2019, there was only one year (2015) in which the total, adjusted for inflation, was less than $1 billion.

Over time, the total per year increased overall, even after accounting for increases in population and consumer price index. Using Statistics Canada data on population, gross domestic product, and inflation, Canadian Underwriter adjusted IBC’s data each year for inflation and then expressed it per capita.

That figure is $3.70 in 1983 and $39.03 in 2019. There were five years (1998, 2011, 2013, 2016 and 2018) in which the inflation-adjusted loss per capita exceeded $50.

“There are a lot of changes in industry-wide insured loss where you look at it and you think, ‘Yeah, you know what? My gut tells me climate change is behind that.’ But to prove it, it gets tricky,” Johansmeyer told Canadian Underwriter.

Nevertheless, he said climate change is a “massive” problem.

“For me to tell you that I don’t see such insurance data as purely indicative of climate change, I don’t say that to dismiss the work of the IPCC or climate scientists in general. I am wholly supportive of them,” he said.

In its latest report, IPCC does not specifically address insured losses and does not quantify anticipated insured losses based on its projections, said Karen Clark, founder and CEO of Boston-based catastrophe modelling firm Karen Clark & Company. Clark founded the catastrophe modelling firm AIR Worldwide Corporation in 1987 and led it until she stepped down as CEO in 2007.

“The IPCC AR6 report confirms what the IPCC has been saying in its previous reports. The confidence in the information in these reports is actually increasing. So, this would help insurers and reinsurers model future loss costs,” Clark told Canadian Underwriter.

“I don’t believe that we need to know the exact magnitude of all these changes of extreme precipitation events or potential for fire, down to the micro scale, to act,” said Feltmate. “If we were launching a national home protection program for Canada, whether or not a neighbourhood might get hit by 90 millimetres of rain over a four-hour period or if it turns out to be 120 millimetres of rain over a six-hour period, or something like that, most of the preparatory actions you would take, at the level of the house, and/or the level of the community, to keep the house or community out of harm’s way when these events occur, it is pretty much all the same actions independent of the exact magnitude of that storm.”

One insight insurers can get is how tropical cyclones are likely to behave, Twidle suggested. It appears that hurricanes category 3 and higher are more likely to occur as global warming increases. This could affect eastern Canada.

“A stronger storm could sustain and hold onto its intensity much longer. There has been a pole-ward shift in those types of storm tracks,” she said.

Sea level rise is another climate-induced change that could affect Canada’s coasts. In a best-case scenario posited by IPCC, there will be global rise in sea level of 0.28 metres. This, Twidle suggested, would be more than enough to change the severity and impact of storm surges.

“We will start to see areas that have not been impacted before, being impacted by storm surge,” she predicted.

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