Warming oceans make parts of world ‘uninsurable’, say insurers

June 24, 2013 8:48 pm

Warming oceans make parts of world ‘uninsurable’, say insurers

By Alistair Gray and Pilita Clark in London

Insurers have issued a rare warning that the speed at which the oceans are warming is threatening their ability to sell affordable policies in a growing number of places around the world.

Parts of the UK and the US state of Florida were already facing “a risk environment that is uninsurable”, said the global insurance industry trade body, the Geneva Association.They were unlikely to be the last areas with such problems, said John Fitzpatrick, the association’s secretary-general.

He said governments needed to invest more in flood defences and tighten building restrictions in risky locations to mitigate the fallout from extreme weather hazards, citing losses from superstorm Sandy, which struck particularly hard in New York and New Jersey last October and cost the economy about $65bn.

“Governments may have fiscal austerity issues in the short run. But in the long run they’re going to have big exposures – to repair damaged infrastructure from storms.”

In spite of the losses from Sandy and a spate of natural catastrophes the previous year, overall global property insurance premiums have remained broadly stable outside loss-hit areas.

However, insurers warn premiums have been kept artificially depressed in the short term because capital has flocked to the sector in the face of historic low interest rates.

Scientists have reported signs of warming oceans for more than a decade but more recent studies cited in a Geneva Association report on Monday suggest this may be more pronounced than previously thought.

The number of weather catastrophes worldwide has risen noticeably over the past 30 years, according to data from Munich Re, the reinsurer. They show a trend in the numbers of storms, floods, heatwaves, droughts and forest fires that has risen from about 300 a year in 1980 to about 900 in 2012.

Insurers are also concerned that an increasing number, and value, of properties being built along waterways and coastlines is pushing up the costs when disasters strike.

Rising friction between the insurance industry and governments struggling to shore up weather protection has become evident in several regions in recent years.

In the UK, insurers have been locked in a battle with officials over an agreement that flood cover is made available to every household in the country. It expires at the end of next month.

Insurers argue the commitment is no longer viable, in large part because of a lack of investment in flood defences, and they want ministers to introduce a scheme to subsidise insurance for high-risk households.

Mr Fitzpatrick also cited the floods that devastated Thailand a year before Sandy, which caused $43bn worth of damage. “Had [the authorities] done a few things earlier it might not have cost [so much],” he said.

He warned of a “step change in the ocean temperature which we know is a key driver of the severity of storms”.

Higher temperatures mean the oceans expand, which contributes to rising sea levels – along with melting ice sheets and glaciers.

The average global sea level has risen by nearly 20cm over the past century, but faster rises have been recorded in more recent years.

The most recent report from the UN body, the Intergovernmental Panel on Climate Change, in 2007, said sea levels rose at an average rate of 1.8mm per year from 1961 to 2003, and by 3.1mm from 1993 to 2003, though it was unclear if this reflected a longer-term trend.

As well as rising sea levels, warmer oceans are thought to be contributing to a big increase in evaporation from the surface of the seas, which in turn leads to heavier rains and potentially more severe storms, as well as longer cyclone seasons in some parts of the world.

These factors may have contributed to the devastation caused by Hurricane Sandy by maintaining the storm’s intensity and helping it make landfall, the Geneva Association report said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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