Natural Disasters and the Greenhouse Effect: Impact on the Insurance Industry and Possible Countermeasures

Abstract

In the last few decades, the international insurance industry has been confronted with a drastic increase in the scope and frequency of great natural disasters. The trend is primarily attributable to the continuing steady growth of the world population and the increasing concentration of people and economic values in urban areas. An additional factor is the global migration of populations and industries into areas such as coastal regions, which are particularly exposed to natural hazards. The natural hazards themselves, on the other hand, have, in most cases, not yet changed to a statistically significant degree. In addition to the problems the insurance industry has with regard to pricing, capacity and loss reserves, the assessment of insured liabilities, preventive planning and the proper adjustment of catastrophe losses are gaining importance. The present problems will be dramatically aggravated if the greenhouse predictions come true. The increasing intensity of all convective processes in the atmosphere will possibly force up the frequency and severity of tropical and extratropical cyclones, tornados, hailstorms, floods and storm surges in many parts of the world with serious consequences for all types of property insurance. Rates will have to be raised and in certain coastal areas insurance cover will only be available after considerable restrictions have been imposed, as for example significant deductibles and low liability or loss limits. In areas of high insurance density the loss potential of individual catastrophes can reach a level at which the national and