Climate Change 2001:
Working Group II: Impacts, Adaptation and Vulnerability
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Public and Private Insurance and Disaster Relief Systems

Inflation-corrected, weather-driven losses have been increasing in North America over the past 3 decades (high confidence). Both exposure and financial surplus of private insurers (especially property insurers) and reinsurers have been growing, and weather-related profit declines and insolvencies have been observed. Insured weather-related losses in North America (59% of the global total) are increasing with affluence and as populations continue to move into vulnerable areas. Insurer vulnerability to these changes varies considerably by region. Insurers are adversely affected by increased variability or actuarial uncertainty of weather-related events. Governments play a key role as insurers and/or providers of disaster relief, especially in cases in which risks are deemed to be uninsurable by the private sector.

Canada and the United States have different loss profiles (high confidence). In both countries, the nature of weather-related exposures and losses is diverse, ranging from property damages to business interruptions caused by electric power or communication system damage (as in the 1998 ice storm).

U.S. government insurance programs for crops and floods have not been profitable and in some cases have encouraged more human activity in at-risk areas. In the absence of similar programs in Canada, government disaster relief programs have paid roughly 86% of flood losses over the past 2 decades. There remains an important tension between the allocation of such risks between private insurers and the public sector, and the effects of climate changes (e.g., coastal erosion) would increasingly stress government programs.

Recent extreme events have led to several responses by insurers, including increased attention to building codes and disaster preparedness, limiting insurance availability or increasing prices, and establishment of new risk-spreading mechanisms. Insurers can play an important role in climate adaptation and mitigation. However, because their actuarial outlook is based on past climatic experience and forward-looking modeling studies are just now beginning to be used, the potential for surprise is real.

Adaptation Potential and Vulnerability

Case studies for various North American subregions and border regions illustrate how the changing nature of climate-society relationships is influencing the nature of vulnerability, climate-related impacts, and adaptive responses. These cases include observed extreme events and potential responses to climate change scenarios. Increased levels of development may reduce vulnerability in some cases (e.g., agriculture) and increase or change vulnerability in others (e.g., Columbia basin water management).

The nature of observed damages reflects the increasing demands that society is placing on natural resources and systems that are sensitive to extreme events, as climate change is superimposed on complex environmental problems (e.g., coastal eutrophication in the Gulf of Mexico).

Climate-related consequences for water, health, food, energy, insurance, governments, and human settlements are likely to require substantial institutional and infrastructure changes in some cases. The short period of time required to make infrastructure adjustments is likely to require new institutions to cope with rapid and sweeping change. The example of new "water markets" in the western United States illustrates an adaptive measure that also may lead to concerns about accessibility of this essential commodity for lower income people, as well as conflicts about social priorities in its allocation (e.g., farms vs. residential use).

Determining responses to scenarios is a long process that requires dialogue with stakeholders. They understand the goals, objectives, and constraints driving the development, management, and operation of resource production and maintenance systems. This interdisciplinary and intercultural dialogue has the potential for improving sharing of information and enhancing its use in decisionmaking at various scales.

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