The cost of weather soars

Mark Twain observed that everybody complains about the weather but nobody does anything about it. Well, thanks to global warming as promised by the climatologists, we are all doing lots to change the weather. Still, some people might ask if that can possibly mean much to them: what difference has been made by weather changes of the past few years? They could go and ask the insurance industry, which would tell them that during 1990-95 insurers worldwide paid out $48 billion for weather related losses, compared with $14 billion for the entire 1980s. In Britain insurers of domestic buildings used to charge a flat premium of around Pounds 1.25 per 1,000 square feet, but today the charge has risen to an average of Pounds 2.20, the difference being entirely due to freak weather phenomena.

Were we to find that climate will keep on changing - as the climatologists assure us will be the case - we shall need to spare more than a thought for the insurance industry. It is one of the largest business sectors of all, with an annual turnover of $1.4 trillion, placing it well ahead of oil with a mere $1 trillion. Despite its economic clout, however, insurance feels distinctly threatened by the potential disruptions of global warming. And, as this admirable book points out, when insurance trembles, capital markets of all kinds - investment interests, pension funds, equity and debt markets - feel a shudder.

In fact, insurance leaders have joined climate experts and environmental activists in warning us all of the perils of global warming. Well they might after taking a financial beating in recent years. Following the Mississippi River flooding in 1993, they had to cover damages worth at least $10 billion. Of the 25 largest insured catastrophes in the United States, 21 have occurred in the past decade; and of these 25, 16 have involved a combination of wind and water disasters - precisely the sort of climatic debacle to be expected in a globally warmed world. According to one of the biggest re-insurers, Munich Re, "With economic and insured losses increasing in volume by a factor of three and five respectively since the 1960s, we definitely have a trend which without exaggeration may be regarded as dramatic." Still more forthright is the view of the US Insurance Institute for Property Losses Reduction. While presenting a worst-case analysis, it has opined "Despite the fact that the insurance industry has some $160 billion in surplus, in just two events you could take maybe $80 billion of that surplus away, and you would cripple the industry." Indeed the industry believes that with only a slight increase in floods, windstorms, droughts and wildfires, it could soon find itself in danger of "global collapse". Yet these knock-on consequences for the very security of our economies are ignored in virtually all analyses of global warming.

Hence the value of this exceptional book. Jeremy Leggett has spent several years on a specialised study of how global warming could hit us hardest in areas we little anticipate. He has distilled his skills and experience into a short and eminently readable book with a startling message. He shows us that, were the insurance sector to be disabled through climate crises, it would be difficult in the extreme for new businesses to start up while bereft of insurance support. Other businesses would be forced to shut down as their insurance expired. Unemployment would surge, starting spectacularly in the labour-intensive insurance sector itself.

His book contains sober upon super sober chapters by leaders in insurance, banking and pension funds, plus financial analysts and investment advisers. Not a greenie among them. It is gratifying that parts of biggest business are proclaiming the vital message: that what is good for the environment is good for the economy too. If only their colleagues would heed this imperative. According to Mark Mansley, a former director of Chase Investment Bank, the top 25 energy-lending banks loaned $72 billion to the energy sector in 1993, almost all of the funds going to coal, oil and gas - these being the fossil fuels whose combustion account for almost half of global warming processes.

Norman Myers is honorary visiting fellow, Green College, University of Oxford.