Insurance costs rise with global warming

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Lord Levene said 2005 was the worst year on record for natural disasters for property insurers, with claims of $US83 billion ($A107.86 billion) worldwide.

Hurricanes such as Katrina and Rita in the United States accounted for $US66 billion ($A85.76 billion) of this total.

But 2006 was a far more benign year.

"Last year was lucky, the wind didn’t blow like (in 2005)," Lord Levene said.

"But the forecast suggests that our good fortune was an anomaly within a trend towards more frequent and more destructive storms."

Lord Levene has urged more businesses to review their risk management strategy and insurance companies to invest more in research to better understand the financial effect of climate change.

Underwriters need to price risk correctly and use better modelling that reflected the latest science, he said.

The former London lord mayor said he accepted it wasn’t easy to precisely measure the effect of global warming on the frequency of natural disasters.

"To what extent (Hurricane Katrina) was caused by climate change or to what extent it would have already happened, we don’t know," he told journalists.

"But the evidence is becoming pretty overwhelming and we have to do something about it."

Lord Levene said some insurers had started pricing the risk of rising sea levels into premiums for property insurance bought by customers in coastal regions.

"If you have a house on the coast you’ll know how much that premium’s gone up," he told journalists.

Lloyd’s hasn’t yet released its full-year results for 2006, but Lord Levene said its revenue rose by about 15 per cent over the past two years to $US16.1 billion ($A20.92 billion).

"We would have had a very good year in 2006," he said.

Lord Levene said Lloyd’s was opening its first Chinese business next month, which he described as a "no brainer" in a "huge, huge market".

Lloyd’s is the sixth-biggest insurer in Australia and has predicted growth for its operations here to be relatively flat after the business experienced rapid growth after the collapse of HIH in 2001.

"In the last two or three years our position in a soft market has plateaued," Lloyd’s head of Australian operations Keith Stern said.

"For as long as we stay in a soft market the ambitions of our underwriters will be tempered by that."

© 2007 AAP

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