Premiums rise for beach homeowners

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The Independent Online

Global warming may not only cause rising sea levels and hot summers - it could also lead to rocketing insurance premiums and a refusal by insurers to provide cover for certain types of risk.

Homeowners living near to the sea or in areas more prone to flooding and storms, may be among those either denied cover or expected to pay far more for it.

The profits of many insurers will also receive a battering as payouts exceed earnings, especially if a catastrophe were to strike suddenly, according to Alexander & Alexander, a firm of risk and insurance consultants.

In the past 20 years, losses due to catastrophes have led to payouts of US$80bn (pounds 55bn), far more, after inflation, than in the previous two decades.

Deborah Durkin, national project director at the company, said yesterday: "We have to examine each catastrophe individually, but there is no doubt that there has been a dramatic increase in the number of storms, earthquakes and similar happenings in the past 15 years.

"The general consensus is that the market will not stand for it indefinitely. The consequence is that certain types of cover will be much harder to obtain.

"In the Netherlands, for example, it is already becoming more difficult to insure against floods."

Her comments follow a conference on global warming and its effects on the insurance market, held in London this week.

Andrew Dlugolecki, chief manager of UK operations at General Accident, the Scottish insurer, said summer temperatures would be higher on average by 2 degrees Celsius within 50 years, with the chance of a 1976-style drought in any year rising to 1:3.

Insurers need to undertake more research into weather patterns co-operating with government and business to improve risks and build up reserves against future claims, he added.

But if, regardless of any preparation, a major earthquake were to strike a large urban centre such as Tokyo, financial losses could lead to 60,000 people losing their lives and cost US$2.5 trillion. A similar catastrophe in Los Angeles could cost US$150bn.

If so, there would not be enough funds worldwide to pay for claims against losses claimed by surviving policy-holders, both private and commercial.

Thomas Tizzio, president of AIG, the US insurer, called for new risk management initiatives to deal with climactic changes.

He said: "In the US, insurers have moved to reduce their exposures in catastrophe-prone areas by reducing [overall] exposures, raising deductibles and rates and by 'shorelining' - cutting back on properties close to the sea."

Mr Tizzio added that greater attention would need to be paid to the ongoing costs of other environmentally related claims, including pollution.