Isra-Mart srl:Climate risks could make emerging markets 'uninsurable'

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The scale of the threat represented by climate change could make some developing economies and high-risk regions uninsurable unless the insurance industry acts now to develop services that can more effectively pool weather-related risks.

That is the conclusion of a major new report from the Forum for the Future think-tank commissioned by the ClimateWise insurance industry group, which predicts that soaring losses related to climate change could force insurers to pull out of those developing countries most at risk from flooding, drought and heatwaves.

Entitled Responding to the Challenge of Climate Change, the report recommends that insurers begin working on new techniques to pool climate risks across different regions or risk a scenario where those countries that are less affected by climate change refuse to pool risk with those that are more vulnerable.

Report author Alice Chapple warned that without access to insurance products, emerging markets would struggle to expand and would find it even harder to adapt to climate change impacts. "Climate change is a global problem which requires global co-operation," she said. "We cannot expect developing countries to play their part if insurers refuse to support their economies by offering cover against the impacts of climate change."

The report also calls on insurers to play a more proactive role in encouraging the kind of low-carbon technologies and behaviours that will help reduce climate change risks in the long run.

"Society will need insurance against the impacts of climate change," the report states. "But the insurance industry also has a critical role to play in limiting those impacts, using its power to drive change through the economy and help create a low-carbon future."

In particular, it advises that insurers restrict directors' liability insurance for carbon-intensive firms that are at higher risk of future environmental litigation; offer lower premiums to low-carbon businesses and charge a "climate premium" to carbon-intensive firms; and review investment strategies to ensure they are not funding carbon-intensive projects.

The report comes just days after the Royal Society published a series of papers on the latest climate change science predicting that based on current emission reduction pledges, average global temperatures are still likely to rise by 4°C this century – a scenario that would lead to severe food shortages and sea level rises.