The frequency of extremely hot days will increase by a factor of 10 in many regions, according to new report on the risks of climate change

Earth from space

The burden of a significantly changing climate carries a number of unique challenges for the insurance industry, according to a report by the Intergovernmental Panel on Climate Change (IPCC).

The Special Report on Managing the Risks of Climate Change was released this week (November 21) after the IPCC and the International Strategy for Disaster Reduction (ISDR) joined forces to conduct research into climate change in 2008. The full summary can be accessed here.

Both organisations reported an increase in maximum and minimum daily temperatures on a global scale. These temperature increases are the result of an increase in greenhouse gas emissions. It is considered likely that the frequency of extremely hot days will increase by a factor of 10 in many regions.

“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 observation (…),” said Qin Dahe, Co-Chair of IPCC. “Confidence in any long-term trend in tropical cyclone intensity, frequency or duration is assessed to be low.”

Alongside the full report the IPCC released a summary for policymakers to provide “insights into how disaster risk management and adaptation may assist vulnerable communities to better cope with a changing climate in a world of inequalities”.

Bryan Joseph, global actuarial leader at PricewaterhouseCoopers, commented that the insurance industry faces great challenges adapting to extreme weather events.

“The increasing wealth of populations brings a growing demand for insurance products, but this has not been matched by better coverage by catastrophe models and other tools that companies use for rating risks.”

“Insurers therefore are 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.”

The cost of events like the recent flooding in Thailand, which is now thought to be as high as USD 30 billion, exemplifies the increasing need to increase resilience to extreme weather events.