There are several climate impacts that may affect a country’s economy, such as floods and wildfires. The scientists focused on heat-induced labour productivity losses as an example, one of the most severe global impacts (24). They made global projections for 2050 (the period 2036 - 2065) for different scenarios of socio-economic development and a moderate and high-end scenario of climate change (RCP4.5 and RCP8.5), and compared these projections with the reference period 1981 - 2010.

Higher temperature and humidity may substantially influence the productivity of workers. Not only are workers more susceptible to illnesses, they are also more prone to errors and accidents due to declining concentration. A worker’s thermal comfort as well as his/her physical and physiological limits determines the work ability and has therefore a direct influence on the productivity of businesses or the total economy (25). As heat decreases productivity, products become more expensive, and trade flows may shift from strongly affected world regions to less affected regions. Also, productivity losses affect a country’s GDP: people may no longer be able to buy certain products and this also affects trade flows. Thus, in the example of Germany, transnational climate change impacts may affect both Germany’s import and export, and hence Germany’s trade balance.

The results of this study show that conditions for carrying out heavy work outdoors will deteriorate both in Europe and globally. Within Europe, this deterioration is strongest for southern Europe (Cyprus, Greece, Italy, Malta, Portugal, Spain). Other European countries are only marginally affected. Globally, in particular Southeast Asian countries and India are severely impacted.

The study indicates that spill-over effects caused by labour productivity losses outside Europe are much more important for Germany’s trade balance than spill-over effects within Europe. In general, the combination of higher direct climate impacts and a more labour-intensive production in the economy results in negative impacts being stronger on countries outside Europe than on those within Europe for both GDP and welfare.

In general, this has two effects on Germany’s trade flows: total imports decline and total exports increase. The decline of imports results from a reduction of imports from outside Europe that is only partly compensated by an increase from European countries. The increase of exports results from a reduction of export to non-European countries being overcompensated by an increase of export to countries in the European Union.

Less import and more export means an increase in the German trade surplus. This could be viewed as beneficial from a German perspective at first glance. Indeed, the authors of this study conclude, the German economy is relatively better off than other world regions because it is less affected by direct impacts and can partly compensate losses in trade with regions outside Europe by gains in trade with European regions. However, all world regions loose in terms of GDP and welfare due to climate change: higher trade within Europe only displays a comparative improvement for Germany, but not an absolute one.

Naturally, the study is based on a number of assumptions, and actual developments may turn out quite different. For instance, there are several adaptation options available to counteract health impacts and productivity losses, including higher shares of air-conditioning, a shift of working hours to cooler periods of the day or the opportunity to adjust clothing (26). Also, people may adjust to heat stress and be able to cope with it more easily in 2050 than currently (27).

Insurance

Insurance for flood damage is already possible. The insurance industry assesses the risk of damage to a building on the basis of a zoning system that takes into account not only the flood risk itself, but also the risk of torrential rainfall and backwater build-up. To date, however, there has been little demand for such damage policies. Nevertheless, since insurance for flood damage is a significant factor in the context of individual flood control precautions by the public, the possibility of introducing compulsory insurance for damage due to the elements, such as flooding, hail and windstorms, has already been discussed – most recently in the wake of the Elbe floods in August 2002 (1).

Across Germany, only an estimated 10% of households have supplementary flood coverage (in former East Germany: around 30% of households in these states). Allianz reports that increases in premiums of 7 to 9 % are likely as a result of the floods and other storm events (2). Market penetration of elementary loss insurance is above national average in former East Germany due to the fact that after the German reunification many commercial insurers decided to continue the policies of the compulsory home insurance of the East German government, which included coverage against all known kinds of natural risks including flooding (21).

In Germany, private insurance companies have provided natural hazards insurance as a supplement to building or contents insurance since 1991. This supplemental contract covers losses due to floods, torrential rain, earthquakes, land subsidence, avalanches, and snow buildup. By default, losses due to windstorms and fires are covered by any building insurance policy. Losses due to storm surges are an uninsurable risk in Germany. 70% of the companies also provide coverage for losses due to backwater in stormwater drainage systems, whereas losses caused by a rise in groundwater level are covered only by a small percentage of the insurance companies (20).

In the future, the insurance industry will no longer calculate its premiums entirely on the basis of past experience, but will make allowance for the expected effects of climate change. Pension funds and other investors in long-term infrastructure projects are also beginning to reassess the risks (10). From future projections of winter storm losses in the German private household sector it was concluded that global-warming induced increases in insured losses under the A1B scenario are generically to be expected, but can be handled within the existing insurance frameworks in Germany (19).

In Germany, regional authorities and commercial insurance companies are starting to more closely align their actions, shifting more responsibility for flood prevention to the individual policy holder (22).

Business

Climate change means considerable risks for many businesses. Storms, intense rainfall and floods could damage or destroy industrial facilities or release hazardous substances. This calls for precautions by plant safety managers. Turbulent weather could also have an impact on operations, e.g. in the event of personnel or materials failing to reach the factory. If electricity, telecommunications or water supplies are interrupted by severe weather conditions, this could also result in operations coming to a standstill elsewhere. All this can prove very expensive (10).

In the United States, averaged over the past 55 years, weather-related events have been responsible for 93% of all catastrophe events, 83% of the economic damages of natural disasters, and 87% of the insured losses. ... The observed upward trend in losses is consistent with what would be expected under climate change and with demographic factors (9).

Technical Risks

• Shortening times between loss events, such as more hurricanes per season,
• Changing absolute and relative variability of losses,
• Changing structure of types of events,
• Shifting spatial distribution of events,
• Damages that increase exponentially or nonlinearly with weather intensity,
• Widespread geographical simultaneity of losses (e.g. from tidal surges arising from a broad die-off of protective coral reefs or disease outbreaks on multiple continents),
• Increased difficulty in anticipating "hot spots" (geographic and demographic) for particular hazards,
• More single events with multiple, correlated consequences. This was well evidenced in the pan-European heat catastrophe of 2003. Immediate or delayed impacts included extensive human morbidity and mortality, wildfire, massive crop losses, and the curtailment of electric power plants due to the temperature or lack of cooling water, and
• More hybrid events with multiple consequences (e.g. El Nino-related rain, ice storms, floods, mudslides, droughts, and wildfires).

Market-based Risks

• Historically-based premiums that lag behind actual losses,
• Failing to foresee and keep up with changing customer needs arising from the consequences of climate change,
• Unanticipated changes in patterns of claims, and associated difficulty in adjusting pricing and reserve practices to maintain profitability,
• Responses of insurance regulators,
• Reputation risks falling on insurers who do not, in the eyes of consumers, do enough to prevent losses arising from climate change, and
• Stresses unrelated to weather but conspiring with climate change impacts to amplify the net adverse impact. These include draw-downs of capital and surplus due to earthquakes or terrorist attacks and increased competition from self-insurance or other competing methods of risk-spreading.

Pressure on insurance affordability & availability under climate change

Extreme weather events have already precipitated contraction of insurance coverage in some markets, and the process can be expected to continue if the losses from such events increase in the future. Impacts vary, of course, depending on the specific circumstances, and can be relatively minor (gradual price increases) to more significant. For the United States, the following outlook has been presented for different types of issues (9):

• Flood - currently a mix of public/private insurance and risk sharing. Under climate change, insurability problems may extend from the present personal and small commercial lines into larger commercial lines.
• Windstorm—a largely insured risk at present. There are already considerable insurability problems and associated changes in terms and pricing, non-renewals, market withdrawl, etc. This could increase dramatically under climate change, resulting in shifting of losses to governments and consumers.
• Agriculture and livestock—currently a public/private insurance partnership. Climate change will stress this sector considerably, with potential for impacts due to drought, flood, pests, or other events on a scale with the Great Dust Bowl of the 1930s.
• Wildfire—currently largely privately insured. More retention of risk by purchasers of insurance and more involvement by state governments is anticipated, while insurers raise deductibles and reduce limits of liability and scope of coverage.
• Mold and moisture damage—largely commercially insured until the crisis emerged a few years ago. Now, many states have exclusions.
• Earth movement and coastal erosion—primarily insured by government, if at all. With permafrost melt, subsidence of dry soils, sinkholes will become more prevalent, as will mudslides and property losses from coastal erosion. Government programs covering storm-surge-driven losses on eroded property could be overwhelmed with losses under climate change, with the result of more retention by property owners.
• Health impacts—currently largely privately insured. An insurability crisis under climate change is not anticipated. Impacts will manifest in the form of elevated health insurance prices.

In Europe, 64 % of all loss events since 1980 are directly attributable to weather and climate events (storms, floods and heat-waves) and 25 % to wild fires, cold spells, landslides and avalanches, which are also linked to weather and climate. 95 % of the overall losses and 78 % of all deaths caused by disastrous events result from such weather and climate-related events. The annual average number of these weather- and climate-related events in Europe increased during the period 1998–2007 by about 65 % compared with the 1980s (5).

Swiss Re has estimated that in Europe the costs of a 100-year storm event could double by the 2080s with climate change (to EUR 40 billion compared with EUR 20 billion today), while average storm losses are estimated to increase by 16–68 % over the same period (3). Analyses of long-term records of flood losses indicate that societal and economic factors have played an important role in the observed upward trends (6).

According to an estimate by the Reinsurance Association of America (RAA), 50% of insured losses in the world within the last 40 years have been the consequence of natural catastrophes in the 1990s. Insurance experts have warned that large regions of the world may be recategorised as ineligible for insurance, because changes in weather caused by climate change (such as heat waves and hurricanes) continue at an accelerating pace (7).

Climate change is expected to lead to an increase in compensable damage, which will contribute to increased insurance premiums. This means that extreme events will result in an increased level of risk in the insurance sector. Climate change may lead to increased costs and maybe even the bankruptcy of insurance companies (7).