British insurers are raising rates on homeowners to insulate themselves from increasing claims blamed on climate change, a justification that U.S. companies are hesitant -- or unable -- to embrace.

The price of policies covering buildings in the United Kingdom rose 10 percent over the last year as insurers struggle to harness losses from severe weather occurring in places that historically had been impervious to events like flooding, according to the Automobile Association, a large British insurance broker.

Those rate hikes are driven by rising damages from heavier precipitation, flash floods and violent storms, the brokerage firm found. Claims rose 15 percent when compared to the first six months of 2008, often in places with "little or no previous record of such claims."

"What we're seeing is flood claims and severe weather damage claims in places -- really strange places [and] different parts of the U.K. -- where there is no history of extreme weather," said Ian Crowder of the Automobile Association.

The number of natural catastrophes is rising worldwide. So is the damage they inflict.

In this decade, U.S. insurers have seen claims rise 53 percent, or $7 billion a year, over the period of 1990-99, when inflation adjusted losses averaged $12.9 billion annually, according to the Insurance Information Institute, an industry group.

Who's guilty? People or climate

But there is debate about how much of that increase should be blamed on human-sparked climate change. Hurricanes grew in frequency and potency beginning in the mid-1990s, as Atlantic waters warmed due to multi-decadal oscillation. The devastating storm seasons of 2004-05 are in part to blame for the heightened losses this decade, now at $19.9 billion a year.

Many scientists and insurance experts say climate change is already sharpening the impact of heavy rainfall, flooding and other effects, and that it is bound to be increasing damage to homes.

But others blame people. Explosive development along exposed coastlines and floodplains has put soft targets in nature's firing lanes, says Robert Hartwig, president of the Insurance Information Institute.

"Is any part of this due to climate change?" Hartwig asks, referring to rising damages. "It's hard to say -- but if it is, it is a small component given the other factors we can account for."

There are other contributors to rising costs of claims than just weather. The cost for materials and labor to repair buildings is on the rise, so insurers are paying more now to fix homes than they did in the past. And the companies' investment profits -- a large part of their annual revenue -- have nose-dived with the global economy.

Regulators demand climate action. And then block it?

So British insurers are trying to build up their reserve accounts as claims soar and threatening weather increases. British insurers differ from U.S. companies in that they look further into the future to determine the steps they take today, including raising rates.

"There is concern that we're going to get more of these severe weather events coming in over the coming years," Crowder said. "Particularly if 20 years down the line we get sea-level changes -- because there are some parts of Britain that are extremely low lying -- that's going to result in storm surges reaching inland."

"The industry is gearing itself up for worst-case scenarios, if you like," Crowder added.

But there are big differences in the way that the British and U.S. industries are overseen.

In the United Kingdom, insurers are free to raise their rates. National regulators only step in if the price hikes are considered unreasonable. It is different in the United States, where insurers are heavily regulated at the state level and have to justify "every penny" of an increase before receiving permission to raise rates, said Hartwig.

"If an insurer went in and said, 'We need a 10 percent increase based on climate change,' then the insurance department [the regulator] would say, 'Prove it,'" Hartwig said. "It's more than just prove it. It's prove that it will increase the cost of homeowners insurance next year in the state of Florida. That's a test that would be beyond the ability of climate change models."

Americans look back, Europeans forward

Those models tend to look decades into the future and do not provide enough "granularity" about next year's climate effects to pinpoint places to justify rate increases, Hartwig added. He said no U.S. insurer has used climate change as a basis for raising premiums.

But that might be the fault of insurers, whom to many have not poured enough money and effort into developing models that do a better job of depicting the effects of climate change.

In a Senate hearing this week, Frank Nutter, president of the Reinsurance Association of America, testified that he is sometimes "disappointed in [insurers'] commitment" to climate change. He said there is "no question" that European insurers are leading their U.S. counterparts on the issue.

"The industry in the United States historically has a business model that tends to be a retrospective one. They look at actuarial data and turn it forward," Nutter told the panel of senators. "The Europeans continue to be more progressive than the U.S. industry in trying to understand future events and the impact on themselves as well as their policyholders."

This article is reproduced with kind permission of E&E Publishing, LLC.
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