The scientific jury may still be out on the extent to which recent weather catastrophes are linked to global warming, but the insurance industry is taking a more practical response. The spate of floods, droughts and hurricanes has left a huge financial cost as well as a human one and highlighted the inadequacy of attitudes to risk and weather.

“Hurricane Katrina was the big wake-up call,” says Professor Julia Slingo, director of climate change at the National Centre for Atmospheric Science at the University of Reading. “It had a significant impact on the industry and the threat of Atlantic hurricanes remains a big worry.”

The financial fallout of Katrina is estimated at $125 billion (£63 billion). With the likelihood of more disasters, developing new products that take climate change into account is one of the biggest challenges the industry faces.

Because the effects of global warming are so random, it is difficult to assess risk accurately. Take India, for example: overall summer rainfall figures show little sign of increasing, yet some areas have become more prone to flooding and are therefore at greater risk.

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While scientists tend to present global warming findings on a long-term, national or international basis, insurers want the risk measured locally so that they can develop appropriate products. The industry is working with academics to solve the problem. In the largest collaboration, 15 international universities, including Cambridge, Exeter and Durham, have formed a partnership with the insurance industry — the Willis Research Network. Under the initiative the industry funds leading academics, including Professor Slingo, to evaluate the impact, seve-rity and frequency of catastrophes. Last year it began using technology in Japan to try more accurately to predict typhoons and hurricanes.

Other organisations are developing weather-indexed products. In Malawi, the Micro Insurance Agency is studying weather data to assess how severely drought affects parts of the country so that it can develop suitable insurance products to sell to the market. “The research didn’t come about because of climate change but it will become more important because of it,” says Aaron Oxley, chief operations officer at the agency, which is part of the charity Opportunity International.

If this kind of information had existed in Burma it could have led to the creation of products that would have helped many of the survivors of Cyclone Nargis, he says. Poor countries, often worst hit by freak weather, are least likely to benefit from insurance.

Floods in the UK last summer, which cost £3 billion, prompted the insurance industry to adopt a more campaigning role. The Association of British Insurers (ABI) has been lobbying government to develop a 25-year flood strategy. “It’s essential that there is an effective co-ordinated approach to flood risk, particularly for drainage and surface water,” an ABI spokesman says. An ABI report in September said: “Climate change will affect every aspect of insurance.” It also said that “new underwriting skills will be needed” and that “existing insurance covers will need adapting to the changing risks”.

Insurance companies also feel the effects of climate change internally. AXA, for example, appointed a head of climate change to co-ordinate risk assessments as well as to manage company attempts to reduce its carbon footprint.

Graduates with expertise in climate change could benefit from the developments. “A sound knowledge of the debate and experience of the scientific rigours of modelling in this and related areas is of real benefit in certain areas of underwriting and risk modeling,” says Scott Keiller, the head of corporate responsibility at AXA. “When appropriate it can form a part of the key skills required for new positions.”

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