The IPCC’s latest report, published on Good Friday, makes only passing reference to insurers, but catalogues a host of potential impacts for many sectors of the industry.

While many of us were about to wake up to an unseasonably warm Good Friday, members of the Intergovernmental Panel on Climate Change (IPCC) had debated through the night to produce the final wording of Working Group II’s contribution to the IPCC’s Fourth Assessment Report, “Climate Change 2007: Climate Change Impacts, Adaptation and Vulnerability, Summary for Policymakers”. Published later on Good Friday, the Summary sets out the Group’s findings on how climate change will affect natural and human systems in this century and into the next.

The Report concludes that all continents and most oceans are already showing changes linked to climate warming and that although some impacts may initially be positive at a regional level, these are likely to be outweighed by a catalogue of negative effects.

A key feature of the Fourth Assessment Report is the Panel’s increased confidence in its predictions, arising partly from the effects of climate change observed and recorded since its last report in 2001 and also from the more specific information now available to assess the likelihood and magnitude of future impacts.

Insurance sectors affected

The Summary makes only passing reference to insurers, suggesting that in the context of more intense tropical cyclone activity, insurance cover may be withdrawn. However, the list of potential effects of climate change, many of which are considered to be likely or very likely, has implications for most sectors of the industry including catastrophe, property, casualty and liability. Many impacts may also affect investment values in the medium to long term. Some of the projected impacts are summarised in the table that follows.

The Fourth Assessment Report considers climate change impacts on a continent by continent basis. Populations already at or near subsistence levels are likely to be most affected by and least capable of adapting to increasing temperature extremes, crop failures and other changes in food supply and water stress.

Some impacts are already beginning to have a measurable effect in many regions. Observed impacts between 1974-2004 include effects on agriculture and forestry management such as pests and wildfires, health effects such as increased heat-related mortality and changes in infectious disease vectors, increased coastal flooding and changes to rainfall patterns.

In the longer term, many ecosystems are expected to collapse as a result of combined stresses such as flooding, drought, wildfire, insects, ocean acidification and pollution. The net uptake of carbon by natural systems may peak by 2050, weakening or even reversing thereafter.

Population growth in coastal areas may amplify the impacts of climate change as new sea level highs affect social and business development and infrastructure. The outlook, if serious mitigation measures are not taken, is somewhat grim.

Short term impacts

“Very large impacts” such as sea level rise of several metres may occur, especially after the 21st century, but in most regions, impacts may seriously affect societies and business far sooner.

 By 2020 between 75 and 250 million people in Africa are expected to be exposed to increasingly severe water stress.

 In Asia, reduced river flows may affect many populations by the 2050s, whilst those in heavily populated delta regions will be exposed to increasingly severe flooding risk.

 Water security problems are expected to intensify in parts of Australia and New Zealand as early as 2030. Population growth in coastal regions is expected to amplify risks from sea level rise and storm frequency. Agricultural and forestry production may start to decline by 2030 due to drought and wildfires.

 Negative effects on agriculture and health in Europe have already been felt in the 2003 heatwave. An increased risk of inland flash floods, coastal flooding and increased erosion due to sea level rise and increased storminess, species losses and the decline of winter tourism are predicted. In central and eastern Europe, high water stress and associated health risks are expected. Peatland fires are expected to increase. High temperatures in Southern Europe are likely to adversely affect crop production and increase health risks. Winter floods and ground instability is expected in northern Europe.

 In Latin America, biodiversity loss, land salinisation and desertification are predicted. By mid-century, savannah may be replacing tropical forest.

 In North America, early this century, increased agricultural yields in some regions will be offset by falling yields in crops unsuited to warmer climates or with high water dependence. Winter flooding may be coupled with reduced summer flows, increasing competition for scarce water resources. Pests, disease and fire may affect forestry. Heatwaves and other severe weather events will affect cities.

 Populations in polar regions and low-lying islands are already having to adapt their way of life to climate change.

Many of these processes are already underway and as global temperatures rise, the impacts are likely to increase.

Many of the effects of climate change cannot now be avoided, but mitigation measures such as reducing emissions and early adaptation may help to reduce some of the most severe effects.

Although not mentioned in the 2007 Summary for Policymakers, the IPCC’s 2001 Third Assessment Report suggested that the insurance may be a major line of defence for individuals and businesses affected by climate change. The conclusions of the Fourth Assessment Report make it even more likely that many will be looking to their insurers to cushion the effects.

Prudent insurers are not only likely to fund damage resulting from climate change, but may also play an important role in defining and promoting early mitigation and adaptation measures.

Such measures are likely to be essential to success and even survival in the uncertain climate ahead.