Adaptation to Climate Change – local and global implications
Climate change is a reality. It is happening now and its impact is felt across the world. It is the major risk facing the world today.

Climate change is of enormous importance to the insurance industry. We invest in business to back long-term pension commitments. We do not invest for a quick buck. So we want to invest in companies that are sustainable. We also help business and individuals to manage risk. So obviously we want those risks to be kept as low as possible whether due to storm, flood or heat wave.

Assessing risk is at the core of our business. The work we have done on climate change shows the threat has arrived. The carbon already produced is already causing extreme weather. Flooding has increased in severity due to sea level rises and more rain. Wind-storms are fiercer. Heat waves are more intense. Reducing carbon emissions will not reverse this trend for a century. So we must adapt. We must protect ourselves.

If we do not adapt the economic costs will be extreme. Over the next 50 years we expect to see:
- windstorm losses increase by two thirds to $27bn per annum worldwide
- additional flooding costs of €100-120bn a year in Europe
- a 15-fold increase in UK flood costs to £22bn
- subsidence costs increasing by 50% in average clay-soil areas
- Heat stress will also increase. By the 2040s the summer of 2003 will be regarded as normal. A quarter of working hours will be hotter than “comfort levels” in London increasing the demand for air conditioning and creating heat islands.
Last year’s floods in the UK were a good example of our concerns. You cannot take one weather-related event and say “climate change”. But the floods still give us a picture of the effects we are facing. 180,000 were flooded. That is four times the annual average – or put another way, four years’ worth of claims in just two months. Claims will reach £3 billion. The insurance industry has coped with this extremely well. People were put in temporary housing in days and almost all are now back in their homes. We coped but we cannot afford it as a regular event.

These floods were the result of extreme rainfall. Water also threatens us from the seas. We expect the sea level to increase by at least a metre this century. Many people say that is a conservative estimate. The financial cost of a major storm on our east coast could reach £15 to 20 billion. This is not a remote possibility. Only recently we were hours away from a combination of a tidal surge, strong east winds and high levels in the Thames causing flooding in London.

Handling such an event would be extremely difficult. A high proportion of our emergency facilities are on the coastal flood plan. And it is worth bearing in mind that the number of people over the age of 75 living on the UK coast, the least mobile members of our community, is expected to double in the next 30 years.

Climate change and its impacts are of particular importance to the insurance industry in the UK because we are one of a very few countries where the private sector fully protects people against the costs of flooding, a standard part of insurance cover. Almost everywhere else in the world, that cost falls on the taxpayer.

So adaptation is vital for us. Mitigation and adaptation are two sides of the same coin and cannot be considered separately.
We already have international action to set a strategy for mitigation. We now need that to be repeated for adaptation. Globally agreed principles need to feed into EU strategic plans and national budgets. Storms do not respect borders, nor do rivers in flood. Across the EU we need a better understanding of risk and agreement on the standard of protection needed across Europe.

Such international strategies must, however, promote and encourage local action. Empowering local authorities to ‘adapt’ is the key to progress. Neither Brussels nor national government understands local geography and local infrastructure. Local government does. Successful adaptation requires a framework, which allows regional and local authorities to develop their own individual action plans, responding to the specific threats affecting each locality.

Policies to enable us to adapt to Climate Change also requires integration with other areas of policy. Progress will be most rapid if our objectives are delivered through the widest range of policy areas and those policies are properly co-ordinated. Policies towards housing, land use planning, transport, water and energy all need to work for adaptation. In the UK our housing objective is to build three million new homes by 2030. A good objective, but one that is made foolish by the expectation that a third of those homes will be erected in areas that are likely to flood. New policies must be climate proofed.

And so must our infrastructure. In the 2007 floods a power facility providing electricity to 600,000 homes was almost put out of action for months. Another centimetre of water would have been enough to destroy it. Too many hospitals, schools, fire and police stations are at similar risk.

In the UK, the ABI welcomes the opportunities the Climate Change, Housing and Planning Reform Bills provide to ensure the UK adapts to the impacts of climate change – these are opportunities that should not be missed.

We need both immediate action and a long-term strategy:
• We need a better assessment of risk. We try to protect towns from river flooding from 100 year storms. But the drains which take away flash flooding from heavy rain are only designed for a 1:30 year storm. And they are often blocked and too many authorities have responsibility for drainage. The legislation needs to create a single strategic body.
We also need better land use planning to stop developers building in high-risk areas and tougher building codes to ensure buildings are more resilient to bad weather. We propose that new standards are established for new developments and those that meet such standards, both in terms of their own resilience and their impact on existing developments, should receive a kite mark assuring owners that insurance will be available. Whilst those that put up sub-standard properties will not be able to give their clients such an assurance. In this way we can make the market work for adaptation.

• We need to increase risk awareness and resilience for businesses, especially SMEs. Climate change is affecting the global supply chain already. Due to the scale of the challenge, managing climate risks requires a partnership-approach between public and private stakeholders.
• We need a clear policy and regulatory framework within which investors can plan. The regulatory framework for energy and water needs to encourage long-term investment in the right kind of infrastructure. It must not respond to short-term fluctuation in markets and political pressures so that consumers are confused. Consumers need consistent price signals which reflect long-term environmental goals.
• And most importantly, we must continue to improve coastal defences and flood protection inland. In the UK we have a deal with the Government. We will provide insurance of properties at risk if flood protection expenditure is adequate. Government is aiming to spend £800 million over the next three years. This level of expenditure was settled before the floods and does not take account of the lessons we have since learnt. The risk is greater than we thought and expenditure from whatever source, must be increased.

Industry Response: ClimateWise
We do, however, recognise that we cannot just make more demands on Government. Our industry must do all it can too, to help tackle climate change.

Last September, the insurance industry launched ClimateWise, a set of principles that commits insurers and the wider insurance industry to build climate change into their business operations.

ClimateWise was developed by the industry with the support of the Prince of Wales to strengthen our efforts to tackle climate change. We aim to promote action both within the industry and among customers.

It marks a new era in action and co-operation. Building on years of climate change analysis by individual companies, this initiative brings the industry together to tackle climate change.
The signatories undertake to extend their research into climate change and to promote their findings.
They also aim to influence customer behaviour by promoting greater awareness of climate change and providing products and services that encourage lower carbon consumption. The insurance industry reaches into millions of homes and businesses, and has a key role to play in enabling customers to prepare for changing weather, as well as encouraging them to reduce their own emissions.

For example, some insurers offer lower premiums for LPV and hybrid cars, some use recycled parts for vehicle repairs. Others help homeowners make their homes more flood resilient.

ClimateWise also includes commitments on companies investment strategies. We want to invest in sustainable businesses that will be successful in the long term.

ClimateWise will deliver real change. The 38 companies and industry associations represent a wide cross section of UK and global insurers, reinsurers, brokers and Lloyd’s. Each is fully committed to tackling climate change. Each will provide a public, annual statement of what it has done to meet the Principles.

That is one way in which the industry is responding. Stepping up to the mark in times of crisis, setting the policy agenda on adaptation to climate change as well as acting on emissions reductions, and assessing the contribution insurers can make to business and customer behaviour.