Insurers worry climate risks could bring financial crisis
Issue warning about property damage from floods and fires
FRANKFURT— Insurers are increasingly worried that rising temperatures will lead to a slump in property values that could spark broader financial turmoil.
Those were the conclusions of a group out of the University of Cambridge, including some of the world’s biggest insurers. In its report, ClimateWise said increasing catastrophes linked to climate change could triple losses on property investments over the next 30 years.
The warning adds to concerns raised last month by Munich Re AG, which said that a string of floods, fires and violent storms had doubled the normal amount of insurable losses.
Munich Re has said global climate-related losses may have topped a record $140 billion (U.S.) last year.
“A failure to take account of these risks could be damaging both for individual investors and lenders, but also for the financial system and economy as a whole,” according to the 74-page report, which was written on behalf of ClimateWise members, including Allianz SE, XL Group, Aviva and Lloyds Bank.
The warning is the latest from the financial sector of the physical and financial risks posed by rising temperatures.
While some investment strategists think climate change will offer opportunities, others warn of damage to commercial and residential real estate.
Scientists are cautious to link any single weather event to global warming, but they’ve built consensus around the probability that more powerful floods, fires, droughts and storms will occur with higher frequency as the Earth warms.
“Massive wildfires appear to be occurring more frequently as a result of climate change,” Munich Re board member Torsten Jeworrek said. He adding investors should look again at whether they’ve properly accounted for rising damages from weather catastrophes.
The German insurer reported $160 billion of losses from natural catastrophes last year, some $20 billion above inflationadjusted averages in the previous three decades.
The ClimateWise report recommends investors take more thorough inventories of housing and business real estate, making logs of flood risks and construction materials used.
They should also incorporate scientists’ climate projections into their own catastrophe models.
Under one scenario tested by ClimateWise, losses on U.K. mortgages could double if temperatures rise by 2 C and triple if they spike by 4 C. The United Nations wants to hold average temperature increase to well below 2 C, which would still represent the quickest shift in the climate since the last ice age ended some 10,000 years ago.
“Financial institutions with long-term investments, including banks and building societies providing new 35-year mortgages today, will have exposures to risks in this time period,” the report said.
The predictions come amid signs that global warming is causing noticeable dents in some of the world’s largest and most sophisticated economies.
Extreme weather events are the most threatening global risks this year, the World Economic Forum said in a report published in January.