The report highlights that climate change is being felt already in Brazil.  In Southeast Amazonia, river flows have slowed or even stopped altogether on some occasions impacting navigation and trade; and causing forest fires leading to airport closures.  The link between climate change and economic impacts is clear. 

Over the coming decades a variety of impacts are likely to arise; many of which we are only beginning to understand.  The Amazon may dry out under some projections; if this happened it is likely to affect the climate around the world.    Extended dry periods would reduce the efficiency of hydro power stations – the dominant source of electricity in Brazil.  Strong winds, like those produced by Hurricane Catarina the first recorded tropical cyclone in the South Atlantic, may damage electricity transmission lines.

Only yesterday, the BBC reported that a severe storm caused widespread power cuts which lasted more than five hours, and left up to a fifth of Brazilians without power.

 Agriculture is responsible for 30% of Brazil’s GDP.  The majority of crops will see a reduction in yield as their potential cultivation area is reduced when conditions become unfavourable for them, though sugar cane may see an increase in yields.  This will create a strong impetus to genetically engineer crops to become tolerant of the new conditions; this brings its own risks as discussed in our Emerging Risks report on Synthetic Biology

The city of Recife is shown to be one of the most vulnerable to sea level rise, with over 80% of its buildings within 30m of the sea.  Yet the report warns that adaptation will only come if the public become engaged with the issue and highlights a number of ways this could be achieved.

We hope this new report, and the conference will lead to further debate on climate change between academics, businesses, policymakers and the public in Brazil.  To tackle climate change we must work together; that message is as true in South America as anywhere.

The CCRIF is the Caribbean insurance pool which pays out when certain parametric earthquake or hurricane indices reach a threshold.  The pool provides fast liquidity to islands that can see multiples of their GDP wiped out in a single event.  The pool purchases reinsurance and the Lloyd’s market (via Hiscox) has been involved.

CCRIF explain that their intention is to help Caribbean islands increase their knowledge on natural catastrophes and climate change.  It is interesting to see this development in advance of the landmark Copenhagen meeting on Climate Change later this year which, it is hoped, will bring a major change in the politics of climate change.  Many stakeholders have submitted proposals to this meeting and at least two of these relate directly to insurance.

The proposals by AOSIS (Alliance of Small Island States) and the MCII (Munich Climate Change Initiative) both believe that insurers have a key role to play in helping the developing world adapt to climate change.  First they believe that countries must adapt and thereby attempt to offset the growing risk (for example by building flood defences, changing building methods, increasing risk management education); but they both admit that adaptation will not remove all risk and some of the residual risk can be pooled by insurers and reinsurers. 

The new CCRIF announcement is a good example of the education on risk (sometimes called “capacity building”) that adaptation will require.  They also state they will assist with disaster reduction schemes, which makes a lot of sense; by reducing the risk the pool will go further.

Deep and rapid cuts in greenhouse gasses are essential.  Yet there will be many years of unavoidable change (probably at least 100) and the global efforts to adapt will bring opportunities to those adept at managing risk.  Insurers have a lot to offer and need to be ready to act.

 According to organisers the meeting brought “together the scientific, engineering, legal, and policy communities along with members of the public”.  This seems an excellent step forward in this exciting but potentially risky field.

So what is synthetic biology?

This is the subject of the latest report from the Emerging Risks team at Lloyd’s (Synthetic Biology: Influencing Development, pdf, 1.2mb).  In a nutshell it’s the next development in genetic modification techniques….

…the ‘Traditional’ Genetic Modification (GM) method cuts DNA from one organism and pastes it into the genome of another, thereby creating a new organism.  It seems odd to use the word ‘traditional’ but in fact these techniques have been around since the 1970s.  The new field of synthetic biology doesn’t need to copy existing DNA; it can create its own—first on the computer and then physically—literally from a primordial soup of raw materials. 

Synthetic biological techniques could be transformative.  Some dreams which are not too far from reality include: engineering bacteria to produce biofuels or cheap drugs; and altering plants to be heat, salt and drought tolerant.  Such successes could be critical in the fight against climate change, water and energy shortage and population growth.

But there are risks, or at least there could be without responsible innovation and appropriate regulation.  A key concern is that, as the techniques rapidly become simpler and cheaper, terrorists will be able to use the new techniques to grow bio-weapons. 

Another concern is that it is almost impossible to predict how an ecosystem will react to a new organism—genes may be swapped unintentionally (this has already happened with some GM plants); and the same goes for human health—we don’t know how these new substances will affect us.

Our new report suggests that the next steps should include:

• mapping uncertainty and then filling the knowledge gaps with a particular focus on understanding health and environmental risks, considering whether existing regulations are appropriate or whether international coordination is called for
• considering extreme high impact, if low probability scenarios as part of risk management
• and tracking the uses of synthetic biology, including mandatory labelling in food.

While it’s still early days, it does appear that a number of insurance lines could be affected in future, so insurers should monitor developments in this field carefully.

Another of our suggested actions is that focus groups should be run involving all stakeholders; so it’s good to see that the symposium mentioned above involved the public.  It will be interesting to see what they conclude.

Download the report: Synthetic Biology: Influencing Development (pdf, 1.2mb)

The current strain of flu that’s causing concern is of the H1N1 type; different to the H5N1 strain (or ‘bird flu’) that made the news several years ago.  The new strain is from a mixture of a swine virus, human flu and, in fact, bird flu.

According to the World Health Organization the majority of people will not have immunity unless they work with pigs.  Once a strain is isolated work on a vaccine can begin but this is likely to take several months to prepare. 

In the meantime antivirals (which help to suppress the full effect of the virus) can be prescribed; it appears that oseltamivir and zanamivir are effective.  A key concern is that a virus will have immunity to antivirals; but at the moment this appears not to be the case, which is fortunate.

The current WHO ‘preparedness phase’ has now been raised to level 4.  The WHO is not recommending travel or trade restrictions.  They have already concluded that containment of the outbreak will not be possible because it has already been identified in many locations. They stress that a pandemic is not inevitable but that it is now more likely.

The excellent on line encyclopedia wikipedia once again shows its worth with an article  that shows suspected cases around the world. These are being mapped live (below) and include unconfirmed cases ranging from the US, UK, Spain to New Zealand.

View H1N1 Swine Flu in a larger map

Note that only 45 cases have been laboratory confirmed with another 1807 cases only “influenza like”.  According to the Centres For Disease Control and Prevention there are small number of confirmed cases from the east to west coast of the US (see graphic).

Restricting the view to just Mexico we see 152 deaths out of 2761 cases, which is appears to be a “case fatality rate” of over 5% (compared to 2.5% for the 1918 “Spanish flu” virus which killed tens of millions, though lower than bird flu which is still at a worrying 60%). 

The case fatality is the percentage of people who are ill with the flu who go on to die from it.  It is likely that a number of cases are unreported (whereas deaths are likely to be tracked accurately) so the true case fatality rate is probably lower than the basic statistics suggest; time will tell.  As you can expect there is some conflicting information on numbers with wikipedia showing 50 confirmed cases in the US and the CFC showing 40.

In the event of a major pandemic the insurance industry will potentially have to cope with an variety of claims, while it is still reeling from its own business continuity problems. Life and health insurers will be directly impacted but less immediately obvious losses could arise, from medical malpractice to event cancellation.

One of the key issues raised is that a major pandemic is thought likely to cause a global recession – given the current financial state of the world’s economy a pandemic could not be worse timed.  At present however, there is good reason to hope the impact of this flu will be manageable; we will continue to monitor the situation.

Adaptation is the term used in climate-change circles to refer to actions taken to make infrastructure and processes more resistant and resilient to climate related harm.  Resistance means that whatever the hazard, it will be kept at bay for longer (eg a flood proof membrane to keep flood water out); and resilience means you bounce back quicker after an event (for example by putting kitchens and living spaces upstairs rather than downstairs for buildings in a flood plane).

Repetto’s report notes that many past studies have assumed that developed countries will adapt to climate change, and therefore for low temperature increases caused by climate change, the impacts will be contained. He goes on to show that assumptions don’t appear to match the way human beings and policymakers actually behave. He cites reasons for humans’ less than rational behaviour such as: the perverse incentives of state run insurance, where premium rates are less than the risk requires; or behavioural economics, which includes concepts like ‘anchoring’, where people struggle to move away from previously held beliefs.

He notes that many disaster plans are based on past events rather than forecasts from climate models and have repeatedly been shown to fail because of this.

His final chilling sentences read:

“Without national leadership and concerted efforts to remove these barriers and obstacles, adaptation to climate change is likely to continue to lag. It will be largely reactive rather than anticipatory and preventive, responding to damaging impacts once they have occurred. To say that the United States can adapt to climate change does not imply that the United States will adapt.”

Lloyd’s 360 project, working with Risk Management Solutions, produced a paper (pdf) in September last year on the benefits of adaptation. It showed that sea level rise of just 30cm could double average losses for some exposed properties; but that certain forms of adaptation could bring the risk back down to below current levels.

Repetto’s paper reminds us that even though adaptation can make sense it often happens too late, or not at all.

Repetto’s paper is on this website: www.climateactionproject.com

Google explain their work  and provide a link to this paper (pdf) from Ginsberg et al which gives more details (including a brief mention of other similar studies, some of which use Yahoo! data). 

At first look this result might seem quite obvious.  If a region is in the depths of a flu epidemic it’s hardly surprising that more people than average will search for information about relevant symptoms.

The real power of Google’s research is that the information contained in the queries appears to have predictive power.  In other words they can spot an impending epidemic before it happens. 

According to Ginsberg et al the new Google methods can give useful information some two weeks prior to the traditional monitoring methods by the Centre for Disease Control and Prevention (CDC).  They stress that traditional methods still have their place and are not calling for their new methods to replace them. 

However, they hope that their approach could be very useful for medical authorities in planning for an epidemic before it occurs.  I imagine this would enable the early ordering and deployment of antivirals, for example.

They consider how their approach might fare during a pandemic and stress that their method has not been tested in this scenario.  It may be that heightened public awareness of the flu at such a time will invalidate their method (searches by the ‘concerned well’ may swamp those with early genuine symptoms).  However, if their method is useful in such a scenario it could save many lives. 

Lloyd’s Emerging Risks team have produced a report on Pandemics (pdf, 408kb) and are continuing to monitor this subject for developments.

In any case, Ginsberg et al state that seasonal flu, which occurs annually, is still responsible for up to half a million deaths every year, so any reduction in mortality from this cause would be welcome.

I found it particularly interesting to see they are focusing on the debate over whether the flu is transmitted via airborne particles or surfaces.

This is an interesting question, not least because if surfaces can act to transmit the flu it opens up other routes for legal liability challenge.

Our pandemic report considers the following scenario:

“A catering company is responsible for the food for a particular global airline. It is discovered that the pandemic can be spread on packaging and after a review the global explosion of the pandemic is tracked back to a sick individual in the company whose health procedures were inadequate. Is the company responsible?”

The proposed Big Brother research may help to answer the question of whether packaging could spread the flu, and therefore help us to anticipate possible legal challenges in future.

However, some scientists believe that some nano-materials may cause health or environmental impacts.  The Royal Commission report on novel materials has made an urgent call to bridge the knowledge gap of the potential environmental and health impacts of nanotechnologies in a systematic and strategic way. They say “we strongly recommend a more directed, more coordinated and larger response led by the Research Councils to address the critical research needs…”.

There is also a call to amend regulations, such as REACH, so that they can be effectively applied to nano-materials.  This is very much in line with the report published by Lloyd’s Emerging Risks team on Nanotechnology.

Our report proposed some systemic failure scenarios, a theme also recommended by the Royal Commission who call for  “Evaluation of methodologies for predicting the likely fate and effects of nano-materials based on their physical and chemical properties as well as their novel properties, and where possible, the development of exposure scenarios.”

If the Commission’s governance recommendations are followed there will be considerably more clarity around responsibilities.

For example they call for DEFRA to require mandatory reporting where food contains nano-particles; they also suggest that companies should have a legal duty to report any suspicion that a material presents a risk to the public or the environment.

Such clarity can only be useful to insurers providing liability cover given that companies are operating in an increasingly litigious world, as highlighted by the Lloyd’s 360 report “Directors in the dock“.

It will be fascinating to follow this debate as it progresses.

Scientists – as ever – are being innovative in their use of the available data.

Apparently they’ve taken satellite observations of sea surface temperature and also the amount of observed chlorophyll from plankton and noticed that they correlated with cholera outbreaks.  Rita Colwell from the University of Maryland has been leading this research.

In an interview on “the naked scientists” Professor Colwell  (”Predicting Cholera Outbreaks from Space” March 2008) noted that: “The areas that are affected mostly are the developing countries: India, Bangladesh, Malaysia, countries in the Middle East and Far East and countries where sanitation and safe drinking water are not available to all.” 

Meera Senthilingam, one of the naked scientists’ team noted that: “We’ve all heard about climate change in the news […] But one factor we don’t hear about is the effect climate change can have on human health and pandemics. A bacterial disease now thought to be exacerbated by climate change is cholera.”

As is so often the case we see the interconnectedness of emerging risks. Climate Change is a subject the Lloyd’s 360 project has devoted significant time to. Pandemics have been studied by the emerging risks team culminating in a report published in October.

The Emerging Risks Team at Lloyd’s have recently published a report on the insurance impacts of a pandemic which explores whether or not the world is better prepared to face the next major pandemic. The report references the 1918 ‘Spanish Flu’ pandemic, which was spread by the demobilisation of troops, and some estimates believe it led to 100 million deaths, more than the First World War itself. The report considers whether this event is truly a worst case.

There are many reasons to believe the world would be better off: better drugs, better communications; models of disease spread; a healthier population and a co-ordinated response from the World Health Organisation backed up by International Health Regulations. But there are also reasons for doubt. Just-in-time supply chains used by many industries including hospitals may not be robust, particularly if they are spread across several countries; global travel far exceeds levels in 1918 and can rapidly spread disease; we have a much larger global population (nearly 3.5 times the level in 1918) and more people live in cities in which the pandemic can spread quickly.

I have a concern that most of the discussions around a pandemic relate to the flu (particularly H5N1) because, while this is the pathogen causing the most concern at present ,it is not the only possible pandemic. Others include: Hendra Virus, Cholera, Tuberculosis, Ebola, MRSA and SARS. It is important that pandemic preparedness plans do not over optimise to one scenario and are robust to many.

The report considers the scenario of a major pandemic which causes a recession (as many fear would happen) and then various experiments to consider how insurers may be affected.  

In scenario planning it is useful to consider possibilities, even if they are felt to be unlikely.  Directly affected insurance classes might include: General Liability, D&O, Employers’ Liability, Medical Malpractice, Event cancellation and Travel insurance.  However, secondary effects might also occur. For example, at the height of a pandemic the number of available tradesmen may temporarily be lower than usual (they may be sick, or just not want to go into other peoples homes). In this case, traditional claims resulting from burst water pipes, storm damage to roofs, etc, may take longer to fix; and usually claims that last longer cost more. 

While these secondary impacts are unlikely to damage the capital of insurers they will be an unwanted drain on profitability.

We hope the report is useful for professionals within insurers that are considering emerging risks.  If the impacts considered in this report were not envisaged at the time of writing a policy then contract certainty is key. Inner limits for pandemic losses may help to contain exposure.