New report shows adaptation is key to managing insurance losses.
Without adaptation, insurance losses from coastal flooding for high-risk properties could double by 2030, says a report from Lloyd’s and Risk Management Solutions (RMS).
The research shows that, with an effective adaptation strategy, future losses could be reduced to below present-day levels with losses for high-risk properties reduced by as much as 70%.
The Coastal Communities and Climate Change report examines the impact of climate change on flood risk at a number of coastal locations in Europe, Asia and the Caribbean. It considers the benefits of a variety of adaptation measures such as flood defences, elevating property on stilts, and changing the property’s characteristics to make it more flood resilient.
Sea levels are projected to rise by at least half a metre during this century, dramatically increasing the risk of flooding in coastal areas. The report argues that poor land use policies and growing urbanisation are exacerbating the risk of flooding in these areas.
The report also suggests that the insurance industry can play a significant part in encouraging adaptation by policyholders through incentivisation. This can be achieved through risk-based pricing where policy premiums are set at a level that more closely reflects the underlying risk to which properties are exposed.
Speaking at the launch of the report, Richard Ward, Lloyd’s chief executive, said: "With over half the world’s population expected to live within 100 kilometres of the coast line in 25 years time, it is imperative that we address this risk now by starting to adapt. The world cannot insure its way out of climate change, but the insurance industry can play a key role in the fight against it by encouraging adaptation, and if this doesn’t happen insurance will become more expensive and less available."
Hemant Shah, RMS chief executive, said: “As sea levels rise, along with changes in the frequency, intensity and geography of extreme weather events, risks will increase. Adaptation can reduce future losses, and to be successful, adaptation plans must be location-specific and risk informed. They must also begin today.”
