Insurers advised on risk models
August 25, 2007 by admin
Filed under News, News-Insurance
With Hurricane Dean having caused havoc across the Caribbean in the past week, along with forest fires caused by the Mediterranean heatwave – not to mention the two disastrous floods in southern England last month and in June – this summer has been marked by an unusually high amount of natural disasters.
Insurance companies have been left to count the costs, with the two UK floods alone estimated to set them back £2.5 billion, according to figures from the Association of British Insurers (ABI).
Today, investments company F&C warned insurers that, with the seemingly higher incidences of natural disasters, they will need to adjust their risk models accordingly.
Associate director in the firm’s governance and sustainable investment team Vicki Bakhshi said: “The good news is that the sector is starting to wake up, and some risk models are now beginning to be amended. But the question is: which will change faster, the way the insurance sector operates or the weather?
“Despite the change in climate conditions, the risk models used by insurers are almost entirely based on historical patterns, not on climate science, and they do not take into account this upward shift in the risks,” she added.
“This means insurers might be underpricing risk. And some may also be underestimating the amount of capital they need to survive the kind of mega-catastrophes that are more likely to occur as a result of climate change.”
F&C also announced today that it has been conducting research into how insurance companies are responding to climate change, and will be publishing a report on it soon.
