Facts & stats
Changing patterns of precipitation are likely to be a further result of climate change, with a potentially significant impact on society and the environment. Urban drainage systems were designed on historic climate data and will not meet the challenges of the future, leading inevitably to significant increases in insurance claims.
Whether or not related to climate change the number and intensity of heavy snow and rainfall events has increased in mid to high latitudes in recent years.
Studies show that the number of extreme rain and snow-related events is expected to increase faster than the trend line for precipitation itself, as climate change alters weather patterns and makes them less predictable.
Research shows that the potential increase in landslide frequency varies both with rainfall duration and the level of total annual precipitation.
What does it all mean?
The scientific evidence points to increased volatility of insurance losses due to extreme events. There are many issues to consider: scarce water resources will affect the population and business alike.
Soil erosion will increase, affecting crop yields and also reducing the ability of the ground to absorb water; in turn this will increase flood risk.
What next?
- We foresee increased pressure on governments and the insurance industry for disaster relief. Insurers will need to work closely with government and disaster relief agencies on disaster planning.
- Insurers should plan for increased flood risk in areas expected to suffer greater rainfall.
- Structural damage is a major risk when extreme hail, ice and snow events occur. The insurance industry should consider how best to work with government to ensure that stricter building codes are developed where necessary, that they are more consistently enforced and that these are more closely linked to policy terms and conditions.
- Weather derivatives and pluvial policies are especially at risk of becoming mispriced as weather patterns change. Insurers involved in these products should review and update pricing parameters regularly.
