TheEconomistSeptember 21st 2019 811T
he pilotsof the Port of London Author-
ity are the cabbies of the Thames estu-
ary. Based in Gravesend, 33km from the
capital, they navigate some 10,000 ships
into London terminals every year. Dis-
patched offshore on fast patrol boats, they
use rope ladders to board ships as tall as
buildings. Much like London’s black-cab
drivers, who know its 25,000 streets by
heart, they must recall every sandbank and
wind farm at the mouth of the river.
They are essential links in supply lines
relied on by south-east England for every-
thing from food to fuel. But when winds are
too strong, pilots cannot board ships. If de-
lays accumulate, terminals get clogged.
The fiercer storms that could soon come to
British shores could paralyse trade for
days. Such a chain reaction is an example
of the costs carbon emissions may bring.
Insurance companies are uniquely ex-
posed to these sorts of changes. Tens of
millions of businesses buy policies every
year to protect themselves from risks. Last
year the premiums paid for property and
casualty insurance worldwide reached
$2.4trn, according to Swiss Re, one of the
big reinsurance firms on to which consum-
er-facing insurers pass the risk of mega-
losses. Extreme events becoming the norm
could force insurers to fork out ever greater
payouts to policyholders, and lower the
value of the assets they hold. The best case
is that insurers reinvent themselves, help-
ing the world cope—managing risk is, after
all, how they make their money. The worst
is that some fail and that swathes of the
global economy become uninsurable.
Already, insurers are seeing disasters of
unprecedented scale. Earlier this month
Hurricane Dorian, one of the two largest
storms ever known to have made landfall
in the Atlantic, battered the Bahamas and
then the Carolinas. In July Hurricane Barry
brought the heaviest rainfall ever mea-
sured to Arkansas. The Indian Ocean basin
has seen three huge cyclones so far this
year. Last November California saw wild-fires over the largest area ever recorded.
Very costly disasters are becoming
more frequent. Between 1980 and 2015
America saw an average of five events each
year causing over $1bn in damage (in cur-
rent prices). Between 2016 and 2018 the
yearly average was 15. In the 20th century,
according to air Worldwide, a climate-
modelling firm, a hurricane on the scale of
Harvey, America’s costliest ever, would
have been regarded as a one-in-2,000-year
event. By 2017, when Harvey blew in, that
frequency was estimated at once in 300
years. By 2100, says Peter Sousounis of air,
it will be once a century, and tidal surges
that used to be classed as once-a-millenni-
um events will be expected every 30 years.
Catastrophes are also getting harder to
predict. Though newer models are starting
to take account of climate change, most
still rely on data from the previous few de-
cades, which are already obsolete. And in-
surers struggle to handle “compounding
effects”—the mutually reinforcing impact
on each other of events associated with
global warming. Working out when
droughts cause wildfires, for example, is
tricky because lower rainfall not only
makes vegetation drier and hence more
flammable, but also slows its growth. Ef-
fects tend not to be linear. Above 100km per
hour, a 10% increase in wind speed usually
causes 50-60% more damage, says Pete
Dailey of rms, a modelling firm.
Adding to the losses is the growingInsurance and climate change
Blown cover
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Why climate change could push insurance firms to the brink
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