Monday, July 23, 2007

Climate Change: Adapt or Bust

From Lloyds 360 Risk Project:

...Recent events have shown capital and pricing models to be wanting. We must regularly update and recalibrate our models to keep pace with REALITY Catastrophe modellers have now reacted to criticisms following the recent record US hurricane seasons.

However, much of this work could and should have been done prior to these events. Going forward, the industry must take a new approach to underwriting, looking ahead and not simply basing decisions on historical patterns.

Insurer pricing and capital allocation models must be updated regularly – and not just in extremis – to reflect the latest scientific evidence. Our responsibilities in this regard will be increasingly widely drawn: regulators will require the industry to maintain a level of capital adequate for changing levels of climate change risk.

From the Conclusions:

This means that the industry can no longer treat climate change as some peripheral workstream, simply to tick the regulatory and compliance box, or to support its public relations strategy.
Instead, understanding and responding to it must become ‘business as usual’ for insurers and those they work with. Failure to take climate change into account will put companies at risk from future legal actions from their own shareholders, their investors and clients.

Lloyds: 24 page PDF