Under the weather

?The earthquake registering 4.3 on the Richter scale that struck Folkestone on 28 April this year and the tornado that caused so much devastation in Birmingham on 28 July 2005 seem symptomatic of a change in the biosphere that has become all too familiar.

Geologists have linked melting ice caps (attributed to climate change) and earthquake activity. Countless studies have established the link between global warming and rising sea levels as well as potentially catastrophic changes in the world’s weather.

So the nature of risk is changing, and climate change is certainly a significant component in that development. But who will deal with it?

The first line of defence is risk management and, while large companies and organisations may have in-house capabilities or be able to afford risk management consultancy services, many SMEs will be reliant on their insurer or, more likely, their broker for assistance in this area.

Fortunately, this is a traditional area of practice for brokers in the commercial market. They will know most clients well enough to be able to undertake the necessary steps. But does climate change add any new dimensions to the traditional process of establishing the risks, assessing what their impact could be on the business and putting a price to the loss?

Insurable risks will be impacted by the rising sea levels predicted to accompany global warming which would affect business premises, homes and parts of the infrastructure in the UK.

Steve Foulsham, technical services officer at Biba, says: “Attitudes to risk will have to change [with long term global warming not only increasing the risks of flooding but also] adding to the stress on building materials.”

But the risks that might accompany a warmer climate aren’t just those of flooding or material stress. Foulsham urges lateral thinking. Warmer temperatures tend to favour certain types of disease, meaning that the UK might have to take steps to cope with, say, a malaria pandemic.

And, though the first thought of risk arising from climate change might not include motor related events, Tim Rankin, managing director of WNS Assistance points out the relevance.

“While most people are still unaware of the impact of the mini monsoons we are seeing on the incidence of motor accidents. It is a fact that the number of road traffic accidents related to precipitation in one way or another is escalating at such a rate that it should be ringing alarm bells with fleet managers.”

John Phillips, training and consultancy manager at Norwich Union Risk Services, sums up the prospect. “Looking at the wider ramifications of climate change, if it should progress as predicted, it will be a very important future component in risk.”

David Gamble, executive director of Airmic, agrees. “It goes well beyond damage to property, extensive though it can be. In the long run, it threatens many of the things we take for granted, such as where we locate our offices and factories and the ability of organisations to continue functioning effectively.

“Ultimately, it threatens the stability of the societies within which we operate.”

“The number of road traffic accidents related to precipitation is escalating at such a rate that it should be ringing alarm bells with fleet managers’

Steve Foulsham, Biba

So climate change is not to be ignored; but what can be done about it? Businesses should plan for disaster recovery with regard to the whole range of potential disasters.

The steps will be familiar to readers: assess the risks; assess the business; consider how to address the risk either by prevention, recovery or insurance.

Phillips adds: “Businesses need to be ‘ ‘ looking at emergency plans and business continuity plans.”

As far as personal lines covers are concerned, insurers already look with growing interest at the flood history of a home’s location and the history of subsidence and other natural risks. Global warming will clearly affect these in the long term but, hopefully, at a predictable rate.

But, are risk managers, insurers and brokers reacting quickly enough to the challenge of change? Risk managers make their living from risk and so we can be confident that they will be on top of this one.

But most risk managers work for or in large businesses. Smaller firms and private individuals don’t usually have access to such expertise and so will rely on insurers and brokers to guide them and point up what is needed in order to deal with risk.

Insurers are having to put their money where their mouths are. They have started to adjust to the pressures from organisations such as the ABI. It has commissioned extensive and well regarded reports on the impacts of flooding on homes and businesses.

Gamble says: “The way insurers responded to the 2005 hurricane season, minimising the economic consequences of a string of catastrophic events, was quite impressive.

“The important thing is to learn from our experiences. Most importantly we need to think much further ahead and to take early action to mitigate possible adverse consequences and to take advantage of commercial opportunities.”

Norwich Union Risk Services now has accreditation to offer brokers and customers an integrated environmental management programme which can result in the attainment of recognised qualifications.

Phillips finds that a lot of brokers are asking about carbon neutral operations and general environmental management issues for themselves and their clients. That seems to suggest that brokers also are aware of the issues and are reacting as quickly as the availability of information will allow.

Climate change is doubtless going to be a significant part of risk in the future and it seems that the insurance industry, at least, has got that risk firmly in its sights. IT