After 2008, can anyone dismiss climate change as a challenge for the future? Munich Re's recent report on natural catastrophes in 2008 is unequivocal in its conclusion that climate change is no longer an issue of the future.

Ernst Rauch, Head of Munich Re's Corporate Climate Center concluded:  

"From 1980 to 2008, over 90% of the insured losses are from weather related catastrophes…climate change has already started and is very probably contributing to increasingly frequent weather extremes and ensuing natural catastrophes.”

After adjusting for inflation, only the years of Katrina and the Kobe earthquake produced greater annual natural catastrophe losses, making 2008 "one of the most devastating years on record". Insured losses reached around $45 billion, 50% higher than in 20071.  

2008 was a year of weather extremes, causing exceptional human and financial losses.  

In Asia, Cyclone Nargis, the first cyclone of the 2008 season in the region, and the equivalent of a Category 3-4 hurricane, caused around 135,000 deaths in Myanmar, after storm surges swept across the Irrawaddy Delta.  

The Gulf of Mexico and US coasts were battered by a record number of consecutive tropical storms, in the fourth most costly hurricane season since records began. The 300-mile wide Hurricane Ike, a Category 2 storm when it made US landfall, caused damage “more akin to a Category 4 hurricane”, according to Lloyd’s Franchise Performance Director, Rolf Tolle. Thousands of lawsuits are expected to be filed against insurers as a result of Ike.  

In March 2008, Central Europe suffered insured losses of $1.5 billion when Emma, an intense low pressure system, brought high winds, thunderstorms and hail. A few months later, Hilal, lashed south-west Germany with strong winds, hail and flash floods, causing a further $1.1 billion loss. In Venice, in December 2008, water levels reached their highest for more than two decades. This may have been too high for Venice’s underwater dam, which is not expected to be completed until 20122.  

On the other side of the world, in Australia, claims payouts due to severe weather events doubled as against 2007’s losses, and insurers’ profits fell by 20%. In New Zealand, following storms and flooding in July 2008, insurers faced a record number of claims for a single month. While insurers have been adding up the figures, scientists have been scrutinising theirs.  

Greater scientific certainty

A study reported in 2008 has concluded that the strongest Atlantic hurricanes have been getting stronger on average over the last three decades, consistent with the hypothesis that warmer seas will provide more energy to fuel hurricane activity3. Elsewhere, the trend is less obvious, possibly because warmer basins show a less marked increase in sea surface temperatures (SSTs).  

In 2008, the apparently anomalous period of global cooling following 1945, which has puzzled scientists and encouraged climate change sceptics, was found to have been the result of instrumental bias4. The apparent anomaly arose because for a period after August 1945, the proportion of SSTs measured by US ships fell significantly relative to UK ships’ measurements. UK ships sampled sea water using a bucket, which tended to depress measurements due to evaporation. US ships measured SSTs at the engine room intake, which tended to artificially to raise readings. The disproportionately high number of UK readings in the period after 1945 produced an apparent cooling trend.  

In 2007, scientists, for the first time, scientists also, for the first time, detected a link between man-made greenhouse gas emissions and increased precipitation at a global scale5.  

Scientists' increasing confidence does not necessarily make it easier for insurers to predict the events of the next twelve months. But whatever 2009 holds, it is going to be challenging for insurers, with economic perils to negotiate as well as natural losses. Traditional markets are facing new uncertainties and new markets are emerging, for example in China, where growing prosperity increases both risks and opportunities. Climate change potentially impacts not only on CAT and property, but also on many areas of liability insurance. Even marine insurers may be heading into uncharted territory, as, in 2008, ice melting in the Arctic Ocean allowed the first commercial vessel to sail through the North-west passage.  

From a legal point of view, evidence appears to be mounting against those who cause climate change and anyone who ought to factor it into their predictions or plans, whether they are creating the infrastructure around us or the products and services we use. Insurers will need to harness all the defences at their disposal, including careful policy drafting and underwriting up front, and equally careful policy interpretation afterwards.