Emissions reductions needed to minimise impact of climate change on the cost and availability of insurance

Sydney, 15 July 2008

A new report commissioned by leading environmental organisation WWF and international financial services leader, Allianz, shows that none of the leading industrialised countries are on track to achieve the emissions reductions required to keep the planet within a 2 degree warming. Ecofys, an independent consultancy, prepared Climate Change Scorecards for the G8 and a number of other countries, including Australia.

Terry Towell, Managing Director of Allianz Australia, “there is an urgent need for a new global agreement to establish a framework of international emissions reductions post the current Kyoto targets to halt the rise in global temperatures and the impact this is having on our climate.”

While debate appears to continue in some quarters about the extent and causes of global warming and the effect it may have on the climate, the insurance industry has been adapting to the effects of climate change for decades.

According to Mr Towell, “the number of Category 4 and 5 storms has increased from around 40 per year in the early 1970s to around 90 per year since the 1990s. Moreover, the numbers of natural catastrophes, the vast majority of which are weather related, have increased from around 30 per year in the early 1970s to around 120 per year since the 1990s. And while some of these rises can be explained by improved detection and measurement of storms, this only accounts for part of the observed increase.”

Mr Towell also highlighted the fact that, “for insurers, the effects of climate change have been apparent for some time, for example, 85% of the largest 40 natural catastrophes occurred between 1988 and 2006. Moreover, before 1988, total annual insured damage caused by severe weather events exceeded US$10 billion only once, but since 1989, annual damage has only been less than US$10 billion four times, and more than US$15 billion ten times.”

“As a result, average insured losses have increased tenfold from an average of around $US3 billion per annum in the early 1970s to an average of around $US30 billion per annum since 2000, and Allianz research estimates that this will rise further to an average of $US41 billion per annum over the period 2010-19. And while trends in urbanisation and coastal development have played their part, the main cause is the increase in the frequency and severity of severe weather events,” Mr Towell said.

“Insured damage is only part of the story and Allianz estimates that average annual total damage (eg including public infrastructure) from severe weather events could be as high as $US120 billion over the next decade and as high as $US360 billion in any one year”, he added.

Greg Bourne, CEO of WWF-Australia, concurred, “WWF found Allianz’s recent research on trends in the size and cost of natural catastrophes quite sobering. These figures very much highlight to high cost of inaction on climate change.”

“The insurance industry is developing new and innovative solutions - such as catastrophe bonds - to manage the risks and costs of severe weather events. However, other more traditional insurance responses such as higher premiums and withdrawal of cover have also been a feature of the response and it is my fear that the latter, in particular, will become more widespread unless strong action is taken to reduce emissions and minimise the impact of climate change,” Mr Towell said.

Concluding, Mr Towell stated, “it is certainly clear from the Climate Scorecards report commissioned by Allianz and WWF that, when it comes to emissions reduction, most of the G8 will not meet their current Kyoto targets and some by a long way. This makes it even more critical that the current negotiations conclude a new international framework with strong targets for deep cuts in emissions in order to halt global temperature rise as soon as possible.”

View the Climate Change Scorecard - Australia
View the G8 Climate Change Scorecards

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The Allianz Australia Group operates in Australia and New Zealand. It is one of Australia’s largest general insurers, a leading private workers’ compensation insurer, and also provides life insurance.

Allianz Australia delivers a wide range of personal, commercial and corporate insurance products and services. AAL is proud to be of service to more than 2 million policy holders and over 50% of Australia’s top 200 BRW listed companies have some form of insurance cover with the group.

Allianz Australia offers a wide range of insurance products and services including car insurance, home insurance and Life insurance.

Allianz Australia has approximately 3300 staff. In 2007, the company achieved a gross written premium exceeding AU$2.4 billion and investment assets of approximately AU$5.5 billion. Allianz Australia Group is a wholly owned subsidiary of the worldwide Allianz Group, one of the world’s largest financial services companies.
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Allianz’s commitment to social, environmental and economic sustainability has been acknowledged internationally by the Dow Jones Sustainability Index, which recognised Allianz as the most sustainable general insurer in the world in 2007. In Australia, Allianz is a member of the Greenhouse Challenge Plus program, which is a cooperative partnership between industry and the Australian Government that aims to reduce greenhouse gas emissions.