‘What on earth is going on’

1. Unbridled industrialisation has not only changed the way we live, whether we can live.
2. Insurance industry set to emerge as the key underlying factor to rebuild a country’s economy in the aftermath of a natural calamity.
3. Industrialised nations need to help developing countries in Asia and elsewhere adopt environmentally friendly technology.

We do not inherit this land from our ancestors, we borrow it from our children. Climate change has been a much talked about subject but never seriously, at least till now. Enter Al Gore, former Vice President of USA with his ‘Inconvenient Truth’ and suddenly it is fashion to talk about climate change and the serious damage it poses to humankind. World’s attention is focused on climate change and its effects. Insurance industry plays a vital role in any country’s economy when the effects of the climate change and its attendant fatalities take their toll. Every brush with nature such as floods, cyclone etc increases insurance claims and thereafter increase in costs to insure.

Consider the following recent effects of nature’s anger at man made environmental changes and its results :

1. Hurricane Katrina, which walloped New Orleans and other Gulf Coast cities, could cost the insurance industry up to $ 25 billion in claims, according to reports from risk assessment firms. The figures do not cover property that isn’t insured, which could add millions to the total.
2. The floods that hit Surat, India, recently, resulted in a tremendous amount of damage to property, particularly cars. With the damage to the cars, insurers were also flooded with aggregate claims worth more than USD 6 billion ( Rs 26,000 crores), according to South Gujarat Chamber of Commerce. And Surat is only a middle level city in India.The worst affected are small and medium businesses and shopkeepers who have lost property, many of them have had to shut shop.
3. In the last two years floods in the Indian States of Maharashtra and Gujarat, have shaken up the insurance industry and increased premiums for insurance-seekers living in risk prone areas such as proximity to a river, dam, reservoir- if the anatomy of risk reveals it to be hazardous.Thus people living in the proximity to a river could end up paying higher premia for flood insurance.
4. Insurance companies are calling the Mumbai rains of July 2005 as one of the worst natural disasters. The number of claims for insurance companies had gone up by at least 10 to 15 times in the aftermath of the unprecedented torrential rains. Motor insurance, industrial, warehouses and shop owners claims were major part of the insurance claims .
5. If it is not the floods then it is the drought.Climate change affects in many forms. The water availability in the Murray-Darling Basin in Australia is a matter of major concern at the moment. The looming catastrophe will directly affect the 50,000 farmers who depend on the river system for their livelihood as well as millions in Adelaide and the numerous towns along the basin, which stretches from southern Queensland to South Australia .

Natural calamities are taking a toll not only on the people but also on the financial health of the insurance companies. Hurricanes, floods, drought and earthquakes have become a regular occurrence. The tsunami of December 26, 2004 and the huge damage to life and property in the aftermath could put immense pressure on the insurance companies. In future, when structuring premiums, the insurance companies may factor in the costs and effects of climate change. In order not to overburden a specific area, may have to spread the costs of the risk to all others. Time to pay for the indiscriminate misuse of nature’s gifts.

Achim Steiner, UN Environment Program Chief, speaking ahead of the UN Security Council’s first ever debate on climate change warned that global warming will cause the Himalayan glaciers to melt, leading to mass migration and possibly conflicts over valuable resources such as agricultural land and fresh water.

The Himalayan glaciers which feed rivers in India and China, are among the fastest melting in the world and expected to displace millions of people from low-lying land as sea levels rise, and disrupt river flows and irrigation of agricultural land.

Scientists have said the Himalayan glaciers could shrink to 100,000 square km by 2030s, from 500,000 square km now, if the current pace of global warming continues.

To reduce the impact on climate change, key strategies could include overhauling the power system, designing better buildings, and switching to cleaner cars and public transport, along with improving farming practices and preserving forests. But there is a catch. Higher insurance premiums to cover increasing damage from more extreme weather events.