No climate-change deniers to be found in the reinsurance business


[In June of 2013] The Danube peaked at 12.8 metres, making it worse than not just the 1954 inundation, but the worst flood since 1501.

Passau was just one of many cities in Germany and Eastern Europe to get hit with record or near-record flooding that month. Munich Re, the German giant of reinsurance—the business of insuring the policies of insurers—put the damage from the June floods at €12 billion. It was estimated that insurance covered only about €3 billion of that amount, meaning a lot of people were out a lot of money. Munich Re’s primary insurance arm, ERGO, alone paid €83 million in claims to German flood victims—twice as much as for the last big flood, which was in 2002.

Passau Floods

Less than three weeks after the European inundation, Calgary and other parts of Alberta got hit with the worst floods in the province’s history. About 100,000 people were displaced and five were killed. Damages were estimated to be as high as $6 billion (Canadian), of which $1.7 billion was insured, making it either Canada’s costliest or second-costliest natural disaster—the final claims tally was still being calculated in the early autumn. The Alberta floods were brutally expensive for homeowners because “overland” flood insurance is not available in Canada, though some relief came from the federal government’s Disaster Financial Assistance Arrangements.

In the aftermath of the German and Canadian floods, the victims, the insurers, the media, the politicians and the scientists were all asking the same questions: What caused them? Was it the relentless buildup of atmospheric carbon dioxide? Could “extreme” weather events become the new normal or were they once-a-millennium acts of god?

In Munich Re’s offices, there wasn’t much debate as the claims cheques flew out the door: The higher frequency of extreme weather events is influenced by climate change; and recent climate change is largely due to burning hydrocarbons. “I’m quite convinced that most climate change is caused by human activity,” says Peter Höppe, head of geo-risks research at Munich Re.

Munich Re, Swiss Re and the other reinsurers, along with the Lloyd’s of London insurance market (unrelated to the bank of the same name), stand out from the rest of the business world by being on the same page as scientists on climate change. What’s more, while most of the planet has its head in the sand about the reality and requirements of global warming, the reinsurance industry has already moved on to mastering the math on other catastrophes.

Munich Re has been examining climate change since then, compiling the world’s most extensive database on natural disasters, covering some 33,000 events and drawing on research by its own staff and more than 200 other sources. “There hasn’t been any industry or company that has addressed climate change this early,” Höppe says.

How did Munich Re and the other reinsurers get it right so early? The answer, in a word, is fear—fear of losses that could destroy their business. No industry has more incentive to know the effects of climate change than the reinsurance and insurance industries.

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