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March 2008                                                                                              Volume 14 - Number 2

    

 

International News...

     

 

British claim to increased natural disasters

By Brenda Madrigal

 

In 2004, the Association for British Insures wrote a report acknowledging the increase of natural disasters due to the onset of climate change. Purpose of the report was to address impact of natural disasters on the industry. Although the particulars for climate change remain disputed, the insurance industry identifies the need to determine cost adjustments considering that in the last 20-30 years, natural disasters are on the rise as a result. Asset management functions are to be adjusted to recalculate potential increase in liabilities. Functions are basing changes as a result of the annual increase of 2-4% in notable household and property claims in recent years.  The rise in claims to the industry will have a trickling effect on investments and capital gains as companies will have to make allowances for increased liability/insurance policies. The PEW Research Center focused on global climate change in the UK, advised on trends that has forecasted a drop in US GDP by three percent in 2100 due to projected loss in the agriculture industry resulting from increased temperatures and potential for drought. Alarming statements such as these give way to scrutiny and controversy as the validity is subjective by the source. 

 

Because the insurance industry has chosen to be preemptive, a certain risk communication is necessary as it may already begin to increase rates with assumption of rise in claims. Since it has become a baseline assumption that natural disasters are on the rise, just how preemptive will the industry be? Afraid of being seen as only looking to capitalize on these events, they have also managed to identify adjustments that companies can make to allow for favorable reduction in premiums. When companies seek to reduce emissions or other factors that negatively contribute to climate change their insurance policy will reflect these changes.  

 

Just as insurance companies have been assessing the cost of climate change, research firms have been studying ways to reduce emissions and made recommendations for policy change. Although OPEC refuted the UK report in 2006 of the severity of climate change due to green house gas (GHG) emissions, British companies to include BP, are favorably pursing research for alternative fuels and other methods within their capacity to make positive changes. Governments and corporations alike may refute the need to take responsibility and act towards a positive change, the question also comes to bare the growing pains of change. There’s a concern of how companies will be able to maintain competitive posture yet respond to improvement.  

 

Although the cost benefit approach helps guide the business industry, support will be needed by research firms and government to help with a positive approach.  Greed versus sustaining an environment is the struggle at which private industry will come to terms with once the profit margin is impacted.        

 

http://insurance.lawyers.com/Natural-Disaster-Insurance-Claims.html

 

http://insurance.lbl.gov/MEDIA/RIMS_Climate.pdf

 

 

http://www.env-econ.net/2006/10/british_climate.html