Mon | Sep 20, 2021
ADVISORY COLUMN: RISKS & INSURANCE

Cedric Stephens | Insurance implications from climate change

Published:Sunday | May 2, 2021 | 12:09 AM
A tractor ventures into the sea in Buff Bay, Portland during construction of a seawall.
A tractor ventures into the sea in Buff Bay, Portland during construction of a seawall.
A seawall under construction in Buff Bay.
A seawall under construction in Buff Bay.
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“Sea wall project nears end as erosion hits Buff Bay shoreline” read a story headline in last Wednesday’s Gleaner.

The article said that the Government was spending $41 million to construct a sea wall along the coastline of Buff Bay, Portland. This was in an attempt to halt erosion along that corridor. The cause of the erosion: the coastline from Annotto Bay to Orange Bay was “adversely affected by high tide and erosion linked to climate change”.

Readers who understand the far-reaching risks that climate change pose to the planet and small island developing states like Jamaica will ask: How many of the nation’s other small and large coastal towns and cities are also showing signs of being adversely affected by climate change? Or what impacts will climate change have, generally, on the economy and, specifically, on insurance companies?

Wednesday’s editorial – Planning for hurricane in COVID-19 – perhaps unknown to its author, was directly connected to the article about the sea wall. Climate change and global warming, in my opinion, should have been the theme around which the piece was constructed. Instead, the main argument centred around mitigation planning.

Jacqueline Joseph, in an article she wrote last year, placed the horse before the cart.

“The 2020 Atlantic Hurricane Season was one for the record books. There were two storms in May, before the season’s official start on June 1. This is the first year since storm record-keeping began in 1851, in which nine named tropical cyclones have formed before August and 13 before September. Exceptionally warm ocean water, due in part to climate change, is driving the record activity. It is irrefutable that there are strong ties between climate change and more destructive Atlantic hurricanes,” she wrote.

She helped readers to understand the gravity of the threats by summarising the findings of climate science as follows:

l Climate change causes extreme rainfall. The rainfall increases the threat of rain and flooding driven by hurricanes.

l Hurricanes get energy by siphoning moisture and energy from warm ocean waters.

l Due to ocean warming, a greater proportion of tropical cyclones around the world are attaining major storm intensity more rapidly than in the past.

l Climate change has been linked to an increase in the frequency of hurricanes in the North Atlantic.

l Sea level rise causes hurricane storm surges to reach further inland and cause more flooding.

l Two factors drove above-normal activity during the 2020 Atlantic Hurricane Season: global warming and the current phase of the El Niño Southern Oscillation.

l From 2016 to 2018, rain pushed aside storm surge as the top source of hurricane-related deaths;.

l Infrastructure built to withstand the storms of the past can collapse as new extremes overwhelm and push infrastructure past design thresholds.

Despite my reservations about Wednesday’s editorial, I agree with its conclusions. Given Jamaica’s experiences during last year’s hurricane season, plus with what we know about climate science, planning for the 2021 hurricane season should be substantially completed. Additionally, there should be ongoing work to reduce other impacts over the long term.

According to a 2018 Jamaica Information Service report, the Government set up a Climate Change Focal Point Network. The network comprises representatives of over 27 ministries and agencies. It was tasked with mobilising resources through the Climate Change Division of the Ministry of Economic Growth and Job Creation. The division now falls under the Ministry of Housing.

What effects will climate change have on insurance companies? I have seen nothing on the websites of the Insurance Association of Jamaica or its member companies that helps me to answer this question or to suggest that this is a consequential matter.

On the other hand, Swiss Re, a global insurer/reinsurer, applied its Economics of Climate Adaptation or ECA methodology to eight CARICOM countries. The study revealed that the climate risks considered vary significantly across pilot countries, ranging from 1.0 per cent of GDP in Antigua and Barbuda to 6.0 per cent of GDP in Jamaica. Overall, risk measured as a proportion of GDP could rise to between 2.0 per cent and 9.0 per cent in the high climate change scenario by 2030.

A June 2020 paper from Georgetown University’s Journal of International Economic Affairs refers to insurance companies as “society’s risk manager”, with “an important role in the web of climate-change complexities. Through their investments, underwriting, and advisory functions, they are directly exposed to a changing climate, which creates threats and opportunities for the sector. Under the banner of ‘sustainable insurance’, a growing number of companies have committed themselves to reducing their carbon footprints, improving their underwriting capabilities, and increasing climate disclosure. However, climate change is still not embedded into day-to-day operating decisions, and the short-term nature (12 months) of most insurance contracts still fails to consider the long-term impacts of climate change.”

The editorial failed to properly address the existential and strategic risks that global warming and climate change pose, especially during the pandemic. The writer overlooked my February 21, 2021, article ‘Planning for Unpredictable Risks’. Had this occurred, the tenor of that opinion piece would probably have been different, and policymakers would have taken notice.

In the meantime, the Climate Change Division in its parent ministry, Housing, is silent while the Office of Disaster Preparedness and Emergency Management remains, oddly, part of the Ministry of Local Government & Community Development.

Thanks Buff Bay sea wall project for the inspiration.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com.