Jeremy's Blog 16th June 2023: Managing Climate Risks

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 15th June 2023

We have yet really to see the scale of what is involved in the climate change already to come, in mitigating and in adapting to it with the substantial trade-offs that will be needed. With El Niño changes now in the Pacific, the expectations are of above trend world temperatures for 2024 – a taste of the future – with the potential for the UK to have a harsher winter and a hotter summer. At what point will society recognise the land use changes for the renewable energy at a scale that will really displace carbon? As with large solar farms, that is a question not just for homeowners protecting their view and governments easing such development but one testing the mettle of much of the Green movement.

The pictures of New York (indeed from St Louis to Montreal), shrouded in smoke, show the drama of climate change as Canada has lost 13 times the usual area to wildfires by early June. Widespread forest fires in Siberia go almost unremarked. With the costs of this damage, insurance markets are a natural barometer of changing risk – reviewed in this CAAV webnote of October 2021. While a report for Banque de France foresees a doubling or tripling of premiums in real terms by 2050, policies, terms, excesses and what might not be covered will also change, giving signals of growing risk and how to reduce it.

Munich Re reports $69 billion of wildfire damage between 2018 and 2022 with $39bn paid out on claims. With four of the five most costly wildfire claims in California, two major insurers are withdrawing from this market. State Farm, followed by Allstate, has now stopped accepting applications for cover on both personal and business properties anywhere in California, citing increased risk, the rising costs of construction and reinsurance markets, leaving householders to carry their own risk. Similar fire risks can be seen elsewhere in the USA, the Mediterranean basin and Australia. Munich Re also reports on floods, storms, winter storms, droughts and other risks, considering prevention of damage.

The UK might not have wildfires of that order but we have flooding as a significant and increasing risk. Since 2016, the UK’s Flood Re scheme offers potential cover to some 350,000 properties in high risk areas, 2 per cent of eligible UK households, but not to business properties or dwellings built since 2009, which already have to manage their own risk. Due to end in 2039, Flood Re also looks to mitigate risk. Since April 2022, it can pay claims which include an amount for Property Flood Resilient repairs up to £10,000 above the cost of like-for-like reinstatement. A further transition plan is due this year.

In Holland, flood insurance became impossible to secure after the devastating 1953 floods, forcing people to manage their own risks in a country with large areas at or below sea level and the Rhine delta. As the 2021 floods showed, Holland took much less damage than Germany – and no deaths.

Meanwhile, Cornwall Council wrestles now with projected £90–110 million costs to defend just one exposed coastal town – Looe – from rising sea levels and severe storms, incidents already depressing economic activity there and in the area. With the flooding 19 years ago of smaller Boscastle costed at towards £50 million, how does this play into planning policy for the next generation?

In the end, this will need much more than a few roof panels, as societies will have to accept more risk, reduce it, adapt to manage it or move.