Is Climate Change Altering Insurers' Hurricane Risk?

When I spoke with Main Street America's Mark Friedlander about his use of social media in advance of Hurricane Sandy, I also asked him about the insurer's wider view of hurricane risk. Do Hurricanes Irene and Sandy indicate a pattern emerging towards more northern impacts of hurricanes?

"All the models have indicated that all the models are moving north -- and we're also talking about another year where Florida pretty much escaped major wind damage," he said. "So this is not a surprise based on what we've seen over the past five years. This storm [Sandy] has the potential to have great impact in the northeast region because the water is warmer than normal."

At the same time, Friedlander added, it's "a very tricky storm to follow," with the very latest models at the time of our conversation showing potential for heavy impact in the Ohio Valley after a more southern impact than initial models forecasted.

That's no surprise as models can be fickle in the short term. But Main Street America is one of several insurers taking a long-term view of the changing face of hurricane risk: warmer waters, farther north in the Atlantic, extending the storm season and increasing its impact.

Some insurers posit that climate change could be the catalyst for these conditions: Swiss Re spoke about it at length in a luncheon earlier this year, while a Munich Re video says that the insurer offers "comprehensive analysis on how loss figures are impacted by changing exposures and behavior; by natural climate swings and by man-made climate change."

North America is the region most affected by this change, Munich Re adds in a companion study to the video, which states, in part:

The study shows a nearly quintupled number of weather-related loss events in North America for the past three decades, compared with an increase factor of 4 in Asia, 2.5 in Africa, 2 in Europe and 1.5 in South America. Anthropogenic climate change is believed to contribute to this trend, though it influences various perils in different ways. Climate change particularly affects formation of heat-waves, droughts, intense precipitation events, and in the long run most probably also tropical cyclone intensity.

The company's board member with responsibility for the US market, Peter Röder, adds in the statement:

Climate change-related increases in hazards – unlike increases in exposure – are not automatically reflected in the premiums. In order to realize a sustainable model of insurance, it is crucially important for us as risk managers to learn about this risk of change and find improved solutions for adaptation, but also mitigation. We should prepare for the weather risk changes that lie ahead, and nowhere more so than in North America.

I understand that it's election season, climate change is a politicized issue and there are strong opinions regarding its existence, causes, and solutions. However, whether or not anthropogenic climate change is an indisputable fact doesn't change the reality U.S. insurers face. The past two years have seen major tornado outbreaks, severe impact on the northeast from tropical storms, and a devastating drought stateside. The industry must find a way to adapt.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio