Financial sector warns of cost of climate change

Two major reports have forecast massive potential costs from damage caused by floods, storms and heatwaves resulting from global climate change.

The Risks

If nothing is done, the ABI report calculates alarming costs in the next 75 years:

  • worldwide costs of storms could increase to €22 billion (£15 billion) per year;
  • costs of flooding in Europe could rise by €122 billion (£82 billion);
  • insurance capital required to cover storm damage could rise by €64 billion (£43 billion).

Preventative measures

The report is not all gloom and doom however: action now could greatly reduce the costs:

  • reduction in carbon emissions could bring down insurance costs by 80%;
  • strengthened building codes could prevent storm damage;
  • improved coastal and flood defences could save €23 billion (£16 billion).

G8 summit

Climate change is one of the priorities of the forthcoming 
G8 summit
. Both reports call on the summit to take a lead, emphasising the need for strong political will and commitment to tackle the causes of climate change through emissions reduction and renewable energies. Tony Blair, presiding over the G8, sees climate change as “long-term, the single most important issue we face as a global community”.

Speaking at the ABI climate change conference launching the report, UK Secretary of State for the Environment 
Margaret Beckett called on the insurance sector to calculate and communicate the extent of the risks. This could be "a catalyst for behaviour change by individuals and businesses", she said.

Joachim Faber,  of Allianz Global Investors, called on governments to provide a "clear and stable political direction" on climate change. He believes that climate change will have an impact on global economic performance and therefore the value of investments. The financial sector cannot ignore this, but, he believes, the risks can be managed.

ABI Director Nick Starling said that "managing the effects of climate change is a key issue for the 21st century. Making the right decisions based on first class assessment of the financial costs of climate change will ensure lower costs for the public in the future".

Both reports, published on 29 June 2005, call for immediate action from governments and the financial industry to avoid crippling cost implications of climate change.

The first report, from the Association of British Insurers (ABI), predicts as much as a two-thirds increase in the cost of cleaning up after climate change by 2080. The ABI report builds on data from research by the Intergovernmental Panel on Climate Change.

The second, a joint report from the WWF and international financial services provider Allianz Global Investors, warns that action must be taken to calculate the cost risks from climate change and make provision for them. The financial industry must take these risks into account but a clear political framework at international level is essential. (See also EURACTIV 3 June 2005).

  • The G8 summit takes place at Gleneagles, Scotland, 6-8 July 2005;
  • UK Presidency of EU begins on 1 July 2005: climate change to be a priority;
  • COP 11, the UN-run conference of the parties to the climate change convention, will take place in Montreal, 28 November to 9 December 2005.

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