Climate change to affect insurance

The Association of British Insurers (ABI) said predicted rises in temperatures in the UK looked set to "significantly" increase the cost to insurers of flood and windstorm damage.

It warned that this would feed through into higher premiums for consumers.

It would also mean insurers had to hold more capital in reserve for potential losses, which could lead to a reduction in the availability of cover.

The ABI worked with the Met Office and risk modelling group AIR Worldwide to look at the financial implications for insurers of predicted temperature increases of 2C, 4C, 6C. It found that the average cost of losses to insurers from river flooding and flash floods could rise by 14% to £633 a year if global temperatures rose by 4C, which could happen by as early as by 2060.

Annual losses as a result of windstorms could increase by 25% to £827 million due to predicted changes to storm tracks, along which cyclones travel.

The cost to insurers from extreme floods, which occur once every 100 years on average in Great Britain, could soar by 30% to £5.4 billion, while the cost of extreme windstorms could rise by 14% to £7.3 billion, based on a 4C rise.

The impact on insurers is even greater if the temperature rises by 6C, with a rise of this level increasing losses from extreme floods and windstorms by 56%.

The group said Wales and the South West would be the worst affected regions of the UK, with average annual flood and wind damage losses for insurers jumping by 29% and 24% respectively if global temperatures rose by 4%.

Nick Starling, the ABI's director of general insurance and health, said: "These findings have serious implications for insurers, householders, businesses and governments."