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The Actuary The magazine of the Institute & Faculty of Actuaries

IPCC: Extreme weather set to increase due to climate change factors

The IPCC has published a summary of its Special Report on Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation (SREX), with the full document due in February.

The report warns that rises in sea level, occurrences of extreme precipitation and drought are ‘very likely' to continue to rise throughout the 21st century, leading to further economic losses from climate-related catastrophes.

Working party co-chair, Qin Dahe, said there was high confidence that both maximum and minimum daily temperatures have increased on a global scale due to the increase of greenhouse gases.

"Changes in other extremes, such as more intense and longer droughts are observed in some regions, but the assessment assigns medium confidence due to a lack of direct observations and a lack of agreement in the available scientific studies," he added.

"Confidence in any long-term trend in tropical cyclone intensity, frequency or duration is assessed to be low."

The report said that it is ‘virtually certain' that, globally, hot days will become even hotter and occur more often.

"For the high emissions scenario, it is likely that the frequency of hot days will increase by a factor of 10 in most regions of the world", said Thomas Stocker, working party co-chair.

"Likewise, heavy precipitation will occur more often, and the wind speed of tropical cyclones will increase while their number will likely remain constant or decrease".

Considering the outlook for the insurance industry, Bryan Joseph, global actuarial leader at PwC, said insurers were caught in a "perfect storm of increasing demand for their products, growing claims costs from catastrophic events and very limited information on which to base their premium rates.

He warned that, even without an increase in the frequency of catastrophic events, the pace at which emerging economies were developing and the large investment in infrastructure meant that claims severity would increase.

"It is in insurers' and reinsurers' interest to encourage the development of better building codes and increased resilience in local construction requirements as this will lower the ultimate costs resulting from extreme weather events," he said.

Mr Joseph added that the changing risk environment offered new opportunities for the industry.

"Governments have become increasingly involved in organising and pooling the protection of risks in their local areas," he said.

"The Caribbean Catastrophe Risk Insurance Facility is a good example of where hurricane-exposed territories have formed a risk pool to provide local protection from catastrophes by mutualising the first layer of risk.

"This has given these smaller economies that are exposed to frequent and severe windstorm risks the benefit of access to the reinsurance market as a collective and also the ability to access the capital markets via insurance-linked securities."