INSURANCE companies are set to raise their estimates for future premiums because of the effects of climate change.

Firms that operate in areas where floods and storms cause a growing amount of damage are likely to see the cost of cover rise by as much as 100% in the next 10 years.

The findings by the Association of British Insurers (ABI) reflect a growing belief in the industry that the consequences of changes in weather patterns have been underestimated.

A report to be published by the ABI this year argues that previous predictions of climate-change damage made in 2005, on which the industry now relies, are too low. “We are concerned that our estimates in our [last] report were too conservative,” said Swenja Surminski at the ABI. “Climate change is likely to have a more severe impact on the future price, affordability and availability of insurance coverage.”

There is a growing sense among scientists that climate-change predictions have been too cautious and that the world faces threats of a different order than was thought even a year ago.

At the Copenhagen climate summit this month, delegates warned that “the worst-case scenario trajectories, or even worse, are being realised”.

Last year was one of the costliest catastrophe years in history. Globally, large-scale events including floods, storms and hurricanes as well as man-made disasters such as explosions or oil and chemical spill-ages, led to economic losses of $269 billion (£186 billion), representing more than a threefold increase from 2007, when losses were $70 billion, and more than five times the losses in 2006, according to a report by Swiss Re, the reinsurer.

The resulting cost to property insurers last year totalled $52 billion. The bulk of this, some $44 billion, was due to natural catastrophes, with storm damage causing the greatest number of claims.

In Europe, the costliest natural catastrophe was Emma, a winter storm that crossed large parts of Europe with wind speeds of up to 95mph, causing insured losses of $1.5 billion and overall losses of $2 billion.

Businesses that have outsourced their production to developing nations such as China and India to save on labour costs may be the hardest hit by worsening weather because these regions are among the highest-risk locations. It is estimated that by 2050, 80% of China’s GDP will emanate from areas that are at some risk of flooding.

“If you are in a high-risk area, you could see premiums double,” said Andrew Dlugo-lecki, an authority on the impact of climate change on the insurance industry and a visiting research fellow at the University of East Anglia’s Climatic Research Unit. “This depends on the severity and frequency of bad weather and how well protected properties are from the increased risks.”

As the impact of climate change on weather patterns becomes clearer, many companies could start to feel the effects. Matthew Grimwade of Aon, an insurance broker and risk-assessment firm, said: “We are already seeing rates for natural disasters increasing by about 10%, and prices will probably increase more than that by the end of this year.”

The inability to afford or secure an insurance policy for a particular property – be it an office building on the coast of Britain or a manufacturing plant in Asia – poses a number of problems for businesses. It could result in companies shifting their assets to safer locations that are less prone to climatic disasters and it could lead to shifts of employment and economic growth.

There are also likely to be financial implications for governments. A forthcoming report by the International Institute for Applied Systems Analysis, funded by the European Commission, will show that the EU Solidarity Fund, which is worth €1 billion and is supposed to cover “uninsurable risk” for government-owned infrastructure such as roads and bridges, is not enough to cover the damage caused by the more frequent storms and flooding that are expected.

According to Reinhard Mechler, one of the report’s researchers, annual losses from floods alone could rise to as much as €1.2 billion by 2030. “With a worsening climate an increase in fund resources is needed,” said Mechler.

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