No. 29 – August 2014
Authors: Anis Bajrektarevic, Carla Baumer
The re-insurance industry does not have the luxury of time in which to debate the “possibility” of climate change but rather to focus on the “probability” of the consequences. Right now, the economic implications of natural catastrophes is 2-9% of GDP in aggregated monetized damage (1-1.5% for the OECD and 2-9% for the developing, non-OECD nations). With the cost of natural disasters predicted to rise exponentially in coming decades, the issue of human security is measured in economic terms. The economic effect of climate change is vague with popular measures of market costs, changes in quality of life, lives lost, species lost and variations in cost distribution and subsequent benefits. These costs are summoned into willingness to pay (the readiness of people to exchange their capital or income for improved human security) and willingness to accept compensation (the amount of compensation needed to “smoothen” inhabitants to accept deteriorating conditions). In response, the re-industry has moved to new catastrophe modelling systems, developed new insurance products, flaunted ‘green’ initiatives and created new defences against climate-related claims in order to analyse and more effectively assess the probability of risks and integrate problem solving mechanisms systems (including the so-called “no-go-zones”).