Market News

 September 15, 2006
Warmer oceans, more intense storms

 New scientific research on ocean surface temperatures has confirmed links between human-caused climate change and stronger storms are likely, strengthening the case for one side of what has been a controversial issue in the past year.

Since Hurricane Katrina ripped across the Gulf Coast in 2005, causing more than $50 billion in property damage according to insurance industry estimates, climate scientists have debated whether or not human-induced climate change can be linked to the increased frequency of intense hurricanes.

The latest findings published in the Proceedings of the National Academy of Sciences seems to end the debate on whether or not warmer ocean temperatures lead to more frequent strong hurricanes, and provides stronger evidence that human activities are to blame.

While the lead scientist in the study, Dr. Ben Santer of Lawrence Livermore National Laboratory in California, warned against directly linking the ferocity of Katrina with climate change, he says the evidence suggests that further warming will lead to stronger hurricanes in the future.

Hurricanes are formed over the warm waters of tropical oceans, which are getting warmer. Over the past century, ocean surface temperatures increased by 0.32 degrees Celsius in the Pacific tropical region and 0.67 degrees C in the tropical Atlantic. This increase is correlated with a doubling in the number of category-4 and 5 hurricanes in the last thirty years, found Kerry Emanuel of the Massachusetts Institute of Technology.

Dr. Santer and his colleagues compared observed sea surface temperatures with the predictions of 22 global climate models. Scenarios such as changes in solar radiation, volcanic eruptions and increased greenhouse gas emissions were put through each model.

The results: only model simulations that included human-caused increases in greenhouse gas emissions could replicate the sea surface temperature data. The results indicated with 84% probability that two-thirds of the observed temperature changes were caused by human activities.

"There is no way of explaining the observed increases without positing a large human impact on these ocean temperatures," said Santer.

The impact of warmer seas on storms may not be that dramatic, however. Chris Landsea, a research meteorologist at the National Hurricane Center in Miami, Florida, predicts that hurricanes will increase in strength by only one percent during the next century. Other researchers forecast further increases in the number of Category 3, 4, and 5 storms that can cause severe property damage.

Climate-related losses increasing

Many experts agree that the biggest cause of increased hurricane damage in recent years is not necessarily more intense storms, but the urban coastline development that has placed inadequately constructed buildings in natural storm paths. In that context, building better cities means using durable materials such as concrete for housing construction, and taking advantage of natural environmental barriers such as coastal wetlands.

Still, there is reasonable scientific evidence that suggests that extreme weather events will increase under projected global temperature increases, although the extent of such changes is under debate.

From a risk management perspective, the insurance industry and the private sector can adopt strategies that allow for mitigation of potential future losses as well as gains from the business opportunities that are presented by climate change.

Weather-related catastrophic losses for U.S. insurers have grown from around $1 billion per year in the 1970s to an average of $17 billion per year over the past decade, with $71 billion in losses in 2005 as the worst year on record.

The insurance industry, with experience in risk management, has a huge opportunity to profit while delivering loss-prevention benefits to society, conclude the authors of a study commissioned by the Ceres investment network.

While innovative climate-related products have been developed, not enough is being done to maximize the potential of this market, the study concludes. Insurers, as well as businesses that seek to manage their climate-related financial risks, must adapt and develop new and progressive policies to stay profitable.

See article: Profiting from Climate Change Insurance

This latest scientific study provides further evidence upon which business leaders and governments can act. Developing long-term strategies means taking account of all possible future risks and evaluating their probability and potential cost. The reality of climate change is becoming clearer as new studies confirm the past assertions of scientists, and the economic pitfalls of ignoring the mounting evidence are too large to consider inaction.