Parametric Cover for Tropical Cyclones in Texas
Presented by Swiss Re April 2009

Worst storm in Brisbane in 10 years - all resources called in for massive clean up

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Insurance Australia Group's submission to the Professor Ross
Garnault's Climate Change Review inquiry said this:

"IAG anticipates a likely increase in both the cost and the variability of weather-related claims as a result of climate change.

Severe weather events affecting heavily populated regions are a significant driver of property insurance costs in Australia.

As referenced in the Garnaut Review's Issues Paper, IAG-sponsored research indicates that the frequency and/or severity of cyclones over south-east Queensland and hailstorms over the Sydney Basin are expected to increase as a result of climate change."

Texas as a case study

Just as IAG and other Australian general insurers focus on SEQ climate risks, Texas has become a focal point of US climate impacts debates.

Texas has been affected by over 150 hurricanes, tropical storms, and tropical depressions since 1851, according to Swiss Re.

Insurers are encouraging state governments like Texas and Queensland to consider innovative public insurance schemes that facilitate rapid reconstruction efforts after major weather events. Swiss Re stresses that:

"Hurricane Ike alone caused $24 billion in damages. The rising impact of natural catastrophes is driving up the cost of disaster relief and reconstruction for the public sector. Texas has been relying heavily on FEMA [US Federal Emergency Management Agency] reimbursements for emergency response and rebuilding. As Governor Perry outlined in his State of the State address, Texas should create a "Disaster Relief and Contingency Account" to augment FEMA post-event funding and reduce dependency on uncertain reimbursement. Texas can create a financing mechanism called a parametric cover that will enable the State to pre-fund significant emergency response costs. New forms of public-private partnership can make societies more resilient by absorbing the financial impact of large catastrophes. These tools can help Texas protect its budget and manage disaster expenses more efficiently by funding them before - instead of after - a catastrophe occurs."

Green Cross supports eco-resilient reconstruction after severe weather events. To faciliate funding for strategic, eco-resilient government reconstruction efforts Green Cross encourages governments to consider innovative insurance approaches such as the Texas Parametric Insurance solution developed by Swiss re that triggers release of funds when triggers such as extent of wind speed impacting on large populations living in the Texas Gulf Coast.

Munich Re points to global trends

Although the evidence is sparse, it appears that weather related natural disasters are climbing in line with a warming planet.

The past 19 out of 20 major Australian insurance events were weather related, and this increase reflects European insurance findings.

The average number of annual disastrous weather and climate related events in Europe doubles over the 1990s compared with the previous decade according to the European Environmental Agency.  Earthquakes and other non-climatic events remained stable over the same time period.

This graph developed by Munich Re, the world's largest re-insurance group, highlights the significant increase in economic and insurance losses (the dollar cost of damage done and the portion of this cost that was insured) when we compare great weather related disasters during the 1990s compared to previous decades.

Some portion of this dollar comparison arguably is due to reasons other than climate change such as growing capital investment, population and migration to areas where disasters hit.

But climate change must feature strongly in the explanation if we observe the sheer number of significant events: 70 during the 1990s compared to 44 in the 1980s and 29 in the 1970s.