Climate change is boosting business for reinsurers, as rising claims from floods and storms mean higher costs but also more scope to raise prices, the world's biggest reinsurer Swiss Re said. Claims from natural catastrophes are rising twice as fast as those from other mishaps, and Swiss Re's risk models show weather will become less predictable and demand for capital to cover risks from floods and hurricanes will stay strong.

"Temperatures on earth are rising. What is relevant for the industry is that claims expectations are going up because of that. We will have to put that through into pricing," Swiss Re Chief Economist Thomas Hess said. In general, claims to reinsurers -- companies that insure other insurers -- are rising slightly faster than economic growth at around 5 percent per year, Hess said. But claims for natural catastrophes are growing twice as fast. "Claims for natural catastrophe insurance are rising roughly 10 percent. If you're a cynic, you could say it's a growth market," Hess said in an interview.

So far this year, there have been no major US hurricanes -- a welcome relief after last year's triple whammy of Katrina, Rita and Wilma, which caused insured losses of some US$65 billion, making it the costliest year ever for the industry. The lack of costly natural catastrophes this year is putting some pressure on reinsurance premiums -- the prices that insurers pay to reinsurers to take risks off their books they find too costly or too volatile to cover themselves.

But the rising trend in prices remained unbroken, Hess said. "If there would be no claims, capital in insurance would rise and you'd see pressure on prices. But I think that with the claims from these big catastrophes, it will take the industry more than just one year to come to terms with that," Hess said.

HIGHER PRICES
Prices would also remain on a higher level after the 2005 disaster year because risk modeling agencies were factoring in higher claims while credit rating agencies required insurers to put more capital aside for any risk they covered. Increasing wealth, and a tendency by wealthy people, who insure more of their assets than the less wealthy, to move to seaside locations, such as Florida, are also having an impact, Hess said.

Overpopulation in already crowded areas near the sea in poor countries is also exposing more people to floods and hurricanes, he said. Swiss Re supports the Kyoto protocol to fight the emissions of greenhouse gases -- the main cause of climate change -- as well as the new round of talks in Nairobi to extend the agreement taking place at present.

Rising awareness means people will try to limit the damage from storms and floods by taking more precautions. "In the end it means that things will remain insurable even if the frequency and severity of hurricanes rises. That is a good thing for policyholders as well as insurers," he said.

Some observers have noted last year's record storms had highlighted that insurers are short of billions of dollars needed to underwrite risk and that they might lose market share to others if they fail to find the extra money. Prices for hurricane cover in the United States have in some cases doubled after last year's storms and some insurers refuse to underwrite such risks in certain areas at all. But there was no overall shortage of insurance cover, Hess said. "Such problems are not new, we have seen it in liability risks where some professions were so much in risk (of litigation) that they had trouble finding cover... There is no major gap in insurance cover," he said.
By Douwe Miedema
(Planet Ark, 14/11/2006)
http://www.planetark.com/dailynewsstory.cfm/newsid/38964/story.htm