Tackling Climate Change

Former President of the US, Obama once said “But for the sake of our children and our future, we must do more to combat climate change”.

Climate change is becoming the biggest challenge of our time, spanning continents, countries generations and civilizations. The Earth is constantly heating at an alarming and unprecedented rate and the average temperature continuing to rise.

Two thirds of the global warming has occurred since 1975 at a rate of roughly 0.15 – 0.2 degrees Celsius per decade. Sadly, this change is believed to be permanently modifying the earth’s climate.

The main trigger is the greenhouse effect, which is increasing the amount of heat retained by the atmosphere hence causing the rise in temperature. Normally, the greenhouse gases present in the atmosphere block heat from being released, otherwise the temperature would have been around 33 degrees Celsius colder on average. Since the Industrial Revolution began and especially over the past 50 years, the Human activities, such as

deforestation and burning fossil fuels at a great rate, have contributed to an increased concentration of atmospheric CO2 along with other gases making the greenhouse effect worse.

The following table lists the 2015 annual CO2 emissions estimates (in thousands of CO2 Tons)

Source: Various sources & Arab Re research

With this constant increase in CO2 emissions and average temperature, it should be expected to see record losses of ice melting in the Arctic Sea, increasing thus the sea level and exposing big cities like New York, Sydney and Mumbai to the risk of drowning. Over the last one hundred years, the ocean has seen a rise of 10 cm to 20 cm. This will influence too, the precipitation patterns with more storms and floods hitting the coastal zones. Oceans and Coral reefs are at risk as well. The latter are starving of oxygen causing eventually the death of the coral while oceans are becoming more acidic.

With the growing threat posed by climate change,

an unprecedented unification of governments all around the world to combat this risk was embodied though the famous 2015 Paris Agreement.

This was is a turning point in the road to low Carbon economy. The accord was negotiated by 196 representatives at the 21st Conference of the UNFCCC in Paris. As of July 2017, 195 UNFCCC members have signed the agreement, out of which 154 have ratified it. Those ratified countries have one aim that is to keep warming well below two degrees Celsius with a target to reach 1.5 degrees Celsius.

Awkwardly and despite the US ranking as second highest emitter of CO2 worldwide, the US government decided recently to withdraw from the agreement causing widespread condemnation. Yet this has given China, ranked first, an opportunity to take the lead. To note that the EU remains one of the world’s carbon polluting regions and comes second just after China and US.

In line with their commitment towards the agreement, the Chinese government along with many European countries have adopted recently national programs aiming at reducing the greenhouse gas emissions i.e. building renewable capacity and nuclear reactors as well as limiting the use of coal in addition to giving incentives to buy electric and hybrid cars.

The target is that by 2020 there should be a 20% reduction of greenhouse gas emissions compared to 1990, and by 2030 a 40% percent reduction.

The common consensus is that there is definitely a relationship between the global warming and severe weather events.

The climate change has the potential to affect the frequency and severity of extreme weather,

which results in hotter heat waves and worse droughts as seen in the example below:

With total losses increasing fivefold since 1980’s and reaching $170 billion today, the climate change has definitely become an emerging risk particularly for the insurance industry. It has indeed a profound impact on insured losses which could top at 1 trillion $ in a bad year.

The most disastrous year for the industry was in 2005 after Hurricanes Katrina and Rita struck America. Hurricane Katrina alone resulted in combined insured losses of around 41 billion $ and is considered to date as the worst insured loss event in the history of insurance anywhere in the world even bigger than 9/11.

The amassed number in extreme weather events has led the insurance sector to adopt a list of mitigation and preventive measures such as:

• Closer coordination with the construction sector by ensuring that rebuilding of properties are done in a sustainable way using better materials;
• Avoiding investments in companies that are major CO2 emitters
• Wider adoption of CAT modeling which is now being measured on a per risk basis for catastrophe exposure;and
• Tightening of policy wording with the use of named storm perils while excluding damages resulting from storm surge.

Additionally, the increased losses are making some of the previously insurable assets to become uninsurable.

The average annual gap have seen a rise from 23 billion $ in the 1980s, to 100 billion $ today. In response to this growing protection gap, 29 of the leading insurance industry organizations including Allianz, Aon, Aviva, Lloyd’s, Prudential, Swiss Re and Zurich launched in 2008 the Climate Wise, a global network with the main target of supporting the insurance industry to better communicate, disclose and respond to the risks associated with the risk of protection gap.

Likewise, the African Union is playing its part to reduce the weather-related disasters and in 2012, they have established the African Risk Capacity Agency (ARC Agency) and its affiliate the African Risk Capacity Insurance Company Limited. This body consists of 32 African nations, which aim at helping the members to improve their capacities to better plan, prepare and response to the threats of climate change. The main objective is to assist them in reducing the losses caused by extreme weather events.

As for the MENA region, it is considered as the world’s driest zone with less than 2% of the world’s water supply.

Recently it has been experiencing a tremendous amount of environmental hazards due to climate change effects i.e. the 2013 floods in Sudan, which caused the destruction of around 25,000 houses, the rainfall drop in Tunisia in 2016 causing agricultural losses of around two billions dinars and the extreme summer temperatures in Kuwait reaching 54 degrees Celsius and many others. 

Countries in the region are well aware of these threats and this has pushed Algeria, Jordan, Malta, Morocco, Palestine, Saudi Arabia, Tunisia and UAE to ratify the Paris Agreement in 2016.

Additionally, all countries have submitted a plan on how they will adapt to the new climate conditions and how they will contribute to achieve their target of reducing the greenhouse gas emissions. For instance,

Morocco, planned to install five solar power plants by 2020 which are sufficient to cover 18 per cent of annual electricity production and save 3.7 billion tons of CO2 emission per year.

Also Saudi Arabia has taken steps to adapt is agriculture, with better water management and more climate resistant crops, while working on lowering the gas emissions. Tunisia, from its side, has made a great progress by embedding in 2014 the climate protection into its constitution and by announcing a 41% emission reduction by 2030.

Most importantly, the World Bank group has come up recently with a new plan that will boost the financing dedicated to climate change by doubling it to 2.5 billion $ per year by 2020 as part of its role of supporting the region in its energy transition phase.

With regard to the insurance sector, more efforts have to be put forward and serious implementations and strategies need to be implemented. This was raised during the latest 14th Carthage Rendez-vous, organized by the Tunisian Federation of Insurance Companies and Tunis Re with the collaboration of GAIF. During the congress,

insurance leaders of the region urged the industry to set up valid system to cover the impacts of climate change

and to build their financial and technical capacities while finding well suitable solutions for the region.

However, the insurance industry is incapable by itself to face the threats and cover the increasing cost of weather related losses. That is why a call for establishing a mechanism involving the private sector through sustainable Public Private Partnerships (PPP) schemes is crucial. The latter is a form of cooperative arrangement between the public and private sector aiming at developing innovative long term relationships between both sectors.

As for the situation in Lebanon specifically, it does not differ from the rest of the region, suffering from the impacts of climate change. According to Inter-governmental Panel on Climate Change (IPCC),

with the current level of Greenhouse Gas (GHG) emission, the temperatures in Lebanon are expected to increase by 1 degree Celsius to 5 degrees Celsius by the end of the 21st Century.

Some international bodies in collaboration with the private and public sector have already started taking timid steps to reduce the costs that climate change will impose on Lebanon.  Such preventive measures include the erection of several large check dams to minimize the effects of floods and the increase of the lending capacity for eco-minded business corporations to invest in renewable energy.

Needless to say, that the Lebanese government should be more committed and involved in the global fight of climate change noting that these anticipated changes in weather will definitely impose direct impacts such as higher temperatures, changes in precipitation and reduction in agricultural productivity. The indirect impacts are expected to hit the economy with a slower growth and lower GDP thus affecting the incomes for workers and exposing the government to lower revenues.

It is obvious that climate change is a real and serious issue and the negative impacts combined with the increased extreme weather events are significant. How ready are we to cope with the impacts of climate change? Are we addressing it fast enough?

People need to know that we do not have the luxury of time and we need to get on truly with climate change adaptation. It is undeniable that climate change along with the concentration of economic values in large cities are posing an unprecedented change in the insured loss trends in the property (re)industry. Global insurers will continue to be intensively involved in studying climate change and adopting climate-friendly initiatives. At a MENA level, non-insurance associations such as banks, universities and industrial groups started tackling climate issues. Therefore, Arab insurers are invited to adopt the commitment made by global (re)insurers even though the MENA zone is relatively less prone to natural catastrophes compared to other parts of the globe.