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**Australian Building Codes Board National Conference**

**["Is Climate Change for real and if so what is the cause, likely
impact and remedy"]{.underline}**

Leanne Stagnitta, National Home Insurance Manager, IAG

Keith Forster, Head of Technical Research, IAG

### 1. Introduction

Weather and climate are "core business" for the insurance industry. At
its most basic, insurers underwrite weather-related catastrophes by
calculating, pricing and spreading the risk and then meeting claims when
they arise. A changing, less predictable climate has the potential to
reduce our capacity to calculate, price and spread this weather-related
risk.

Insurance Australia Group (IAG) believes that human-induced climate
change is now a reality and that it must be addressed with appropriate
urgency.

The role of insurance in underwriting weather-related risk is an
important component of the national economy. Any reduction in the
industry's ability to underwrite weather-related risk will have serious
ramifications for the economies of those vulnerable regions where
climate and weather risk is greatest.

### 2. Evidence of Climate Change 

IAG's assessment that climate change is a current problem is based on a
combination of the science of climate change presented by the
Intergovernmental Panel on Climate Change (IPCC) and associated
modelling, work done by the re-insurance sector (Swiss Re and Munich
Re), and on our own modelling, research and claims experience.

The IPCC is a body set up by the UN and the World Meteorological
Organisation in 1992 which draws together the work of several thousand
scientists from around the world,

The Third Assessment Report of the IPCC concluded that global warming
has taken place over the last century, and there is new and stronger
evidence that most of the warming over the last 50 years is attributable
to human activities.

Figure 1 shows the increasing global warming temperature trend over the
period 1861 - 2004.

Figure 1 -- Yearly difference from 1961 -- 1990 global average surface
temperature for the period 1861-2004 (UK Met Office, 2005)

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height="4.634027777777778in"}

Temperatures rose by 0.6 ºC over the last century with the 1990's being
the warmest decade and 9 out of the last 10 years being the warmest
years since instrumental records began in 1861 (IPCC, 2001; UK Met
Office, 2005).

There is now enough momentum in the climate system, born from past
energy and land use practices, to inflict further warming (IPCC, 2001).
Although the implementation of global mitigation strategies could
significantly reduce the amount of warming, some changes to our future
climate are inevitable.

There is no longer a rational scientific debate around whether human
emissions of greenhouse gases are causing climate change -- it is a fact
that is now widely accepted in the scientific community. UK's chief
scientific officer Sir David King has said "I see climate change as the
greatest challenges facing Britain and the World in the 21st century."
King has also stated that "the scientific community has reached a
consensus. I do not believe that amongst the scientists there is a
discussion as to whether global warming is due to anthropogenic effects.
It is largely man-driven, and there is a consensus." (UK Parliament
2004)

### 3. Causes of Climate Change

Current climate change is mainly caused by increasing the concentrations
of Greenhouse gases ("GHGs") in our atmosphere by human-induced fossil
fuel emissions. The extra GHGs trap additional heat in our atmosphere
increasing air temperatures. GHG increases are due mainly to burning of
fossil fuels for electricity and transportation. Every time we drive a
car, use electricity from coal-fired power plants or heat our homes we
release GHGs into the air.

Since the 1880's significant amounts of greenhouse gases have been
released into the air as a result of human activity. Atmospheric levels
of the main human induced GHGs (carbon dioxide and methane) are
currently higher than at any point in the last 420,000 years (IPCC,
2001). Per person, Australians produce more GHG emissions than any other
industrialised nation. At 27.2 tonnes of greenhouse pollution per
person, emissions by Australians are 27% higher than those of Americans
and more than double the average for industrialized countries (Australia
Institute, 2001).

In 2002, total Australian GHG emissions were split between the different
sectors as follows:

Figure 2- Total Australian Greenhouse Gas Emissions, 2002 (source: AGO,
2004)

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height="2.1618055555555555in"}

Ex - Australian chief scientist, Robin Batterham has stated that highly
significant greenhouse gas emission reductions in the order of 50% by
2050 are needed if we have any chance of limiting the climate change
effect to a reasonable level.

### 4. Impact of Climate Change on Property

From a meteorological point of view, a storm which is classed as an
extreme event may not be much more severe than a level of storm
intensity that occurs regularly each year. However they can achieve huge
increases in damages through the breaking of critical thresholds.
Insurance industry experience shows that even small increases in event
severity (\< 10%) can cause multiple increases in damages (UNEP FI,
2002). IAG's own experience shows that a 25% increase in peak wind gust
strength can generate a 6.5-fold increase in building claims (Figure 2).

Figure 3 -- Trend in building insurance damages with increasing average
wind speed

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height="3.682638888888889in"}

IAG claims data also shows that once wind gusts reach a certain level,
entire roof sections are blown off, or additional damages are caused by
falling trees. Yet below this level damage may be minimal. Similarly,
hailstones below a certain size do not damage car panels but above this
size, damage increases abruptly.

This is supported further by the results shown in Table 1, where
evidence from global observations or modelling studies highlight that
small changes to mean climate conditions can have disproportionate
changes in damage and losses.

Table 1: Some of the disproportionate changes in extremes in comparison
with changes in averages (cited by Mills et al, 2001)

  ------------- ---------------------------- -------------------------------
  **Hazard**    **Cause Of Change In         **Resulting Change In
                Hazard**                     Damage/Loss**

  Windstorm     Doubling of windspeed        Four-fold increase in damages

                2.2 °C mean temperature      Increase of 5-10% in hurricane
                increase                     wind speeds

  Extreme       1 °C mean temperature        300-year temperature events
                increase                     occur every 10

  temperature                                years

  episodes                                    

  Floods        25% increase in 30 minute    Flooding return period reduced
                                             from 100 years

                Precipitation                to 17 years

  Bushfire      1 °C mean summer             28% increase in wildfires

                temperature increase          

                Doubling of CO2              143% increase in catastrophic
                                             wildfires
  ------------- ---------------------------- -------------------------------

The IPCC's Third Assessment Report (2001), projects that the behaviour
of extreme events could be affected significantly by small increases to
the global mean temperature. Increases in intensity and/or frequency of
tropical cyclones, floods and bushfires caused by a projected 1.4 -- 5.8
ºC global mean temperature increase by 2100, are all likely to be part
of our future climate. The IPCC report contains projected changes in
extreme weather and climate events. Many of these are almost certain to
have a direct impact on Insurance risk.

Table 2 -- Projected Insurance and Property Impacts of Climate Change
(Source: IPCC, 2001)

  --------------------------- --------------- ---------------------------
  **Changes in phenomenon**   **Confidence in **Impact on Insurance and
                              projected       Property Risk**
                              changes (during 
                              21st century)** 

  More intense precipitation  Very likely     Increase in storm damage
  events                      over most areas including flash flood

  Increase in tropical        Likely, over    Greater damage, possibly
  cyclone peak wind and       some areas      over greater area
  precipitation intensities                   

  Increase in heat index over Very likely     Increase in bushfire risk
  land areas                  over most areas 
  --------------------------- --------------- ---------------------------

The Australian Greenhouse Office (Pittock, 2003) states that:

"An increase in the heat or discomfort index is very likely in most
tropical and mid-latitude areas. More intense precipitation events are
very likely over many areas (with implications for more frequent
flooding), and increased summer drying is likely over mid-latitude
continental interiors, with an increased risk of drought. Increased
intensity of tropical cyclone winds and peak rainfalls is likely.
Greater extremes of flood and drought are likely with the El
Nino-Southern Oscillation, which is expected to continue."

IAG believes that we have seen the type of impact of global warming will
have on insurance risk, through the 2003 bushfires in NSW. Increased
evaporation rates associated with higher temperatures increased the
intensity of these bushfires, an even more likely scenario under future
climate conditions.

### 5. International response required

In order to reduce the threat of climate change, greenhouse gas
emissions need to be reduced and we need to adapt to the anticipated
changes that are occurring. Scientists have said that in order to
stabilize the temperature increases to 2°C, greenhouse gas reductions in
the order of 60% are required by 2050[^1] { }. The strength of the
IPCC's conclusions has led national and regional governments around the
world to establish policies relating to both mitigation of the threat of
climate change and adaptations to the anticipated change. As a result,
Germany are committing to reduce emissions by 40% by 2020, the United
Kingdom have set a target of 60% by 2050, California has set a target of
80% by 2050 and Mexico 75% by 2050.

Countries are also beginning to consider how vulnerable their cities and
countries are to climate change and how best to adapt.

### 6. IAG's response

IAG believes an appropriate response to climate change has 3 distinct
elements:

-   Understanding -- pursue scientific research into weather and climate
    in Australia and New Zealand, and thus learn more about what changes
    we can expect in future;

-   Mitigation -- working to reduce greenhouse gas emissions and thus
    the longer-term likelihood of severe weather events;

-   Adaptation -- living with a likely increase in event frequency
    and/or severity no matter what other actions are taken.

##### 6.1 Understanding

IAG has funded cutting edge research into climate change, using external
climate and weather experts and world leading modeling and computer
systems. A key goal of the research has been to determine impacts at a
regional or local level through the use of higher resolution modelling.
Localised impact assessments give communities the information required
to develop specific response strategies, especially in regards to
adaptation.

IAG sees the research into how extreme weather and climate events are
affected by climate change as a long-term commitment because large
improvements can still be made to both the physics and numerics of the
models and to estimates of the most likely future emission scenarios.
IAG's research so far has focused on hail events in the Sydney region,
tropical cyclones in northern Australia and New Zealand and weather
bombs in New Zealand. The results to date should be seen as preliminary
and therefore be treated with caution, however all of these phenomena
have shown a potential to increase in both frequency and intensity as a
result of climate change. IAG is planning more comprehensive research
into these and other extreme weather phenomena to increase our
confidence in these early findings. One of the key aims for future work
is to determine how quickly the nature of extreme events is changing so
we can better determine the best ways to respond to the changes.

##### 6.2 Mitigation

With an increased awareness amongst politicians, business and the
general community of the need to reduce greenhouse gas emissions, there
are numerous examples of mitigation measures. The NSW Government's BASIX
system, which requires significant reductions in energy and water use
for new houses and soon for renovations and high density residential
developments, is one example of a very effective tool in reducing
greenhouse gas emissions. Companies that are developing energy
efficiency programmes are reaping the financial benefits and reducing
emissions at the same time. Energy efficient commercial buildings are
becoming more numerous, and the ratification of the Kyoto Protocol has
given added political and societal impetus around the importance of
reducing greenhouse gas emissions. However, whilst mitigation activities
to date are encouraging, far more needs to be done if we are to achieve
a 60% reduction in emissions by mid-century.

IAG has set its own internal targets of reducing paper, energy and fuel
consumption in order to reduce our own environmental footprint. IAG has
developed a Home Help website which includes designing and building as
well as energy and water saving tips in order to try and reduce
greenhouse gas emissions. It also has a white good profiler which
compares the energy consumption of different white goods used in the
home.

Car collision claims make up a significant portion of overall claims
paid by our business and we are working with our preferred smash
repairers to find ways of reducing environmental wastage of replacement
car parts. Previously every time there was a car crash the bumper bar on
the car was replaced with a new one and the old one thrown away to
landfill. We are now working to try and reduce greenhouse gas emissions
by remoulding these bumper bars rather than merely sending them to
landfill.

##### 6.3 Adaptation

"The high probability of at least some global warming, given the inertia
in the climate and socioeconomic systems, means that some adaptation
will be necessary. This will be most efficient if the location- and
activity-specific nature of the likely impacts is taken into account."
(Pittock, 2003)

It is in the area of adaptation that society has made arguably the least
progress. With improving science around the likely impacts of climate
change, and the reality that even with extreme mitigation measures, some
amount of climate change is inevitable, the need for adaptation
strategies becomes even more pronounced.

Adaptation seeks to reduce the impacts of climate change. The IPCC
(2001b) defines adaptation as the "*adjustment in ecological, social, or
economic systems in response to actual or expected climatic stimuli and
their effects, which moderates harm or exploits beneficial
opportunities*.". The Planning Institute of Australia (2004) recognises
that whilst doing nothing is not a responsible option, "adaptation is
complex and requires a multi-level and multi-disciplinary approach to
effectively identify and implement climate change adaptation
strategies."

**Example : Flood Risk Management in New Zealand**

In 2004, IAG developed a partnership with local government planners in
New Zealand to determine the most appropriate flood planning levels for
the future. IAG provided the scientific modelling results which showed
changes in extreme rainfall, which the local government then used to
determine the likely changes to future flood levels. This was then
incorporated into their flood mitigation programme, for example,
planning for higher levee banks.

This is only one example of how business can work with government and
planners in the development of strategies and guidelines in response to
the expected increase in frequency and/or severity of extreme weather
events, brought about by climate change. IAG sees that there are many
similar opportunities which are yet to be pursued, and others which
remain to be identified.

### 7. Building Codes and Climate Change

Buildings being planned and constructed now have lifetimes of 50 years
or more, well within the timeframe of projected significant increases in
frequency and/or severity of extreme weather events brought about by
climate change. Thus a review of the current building codes is an
important aspect of society's response to climate change. For example,
are codes sufficient in the areas in which they apply, given that
average winds speeds may be stronger or floods higher than we've
experienced in the past? Are there areas to which building codes
currently do not apply, but which should be reconsidered due to climate
change impacts?

In the late 1970's to early 80's, specific codes were implemented that
addressed tropical cyclone wind loads on residential buildings. Since
that time there has been a marked observed difference in damage to pre
and post code buildings following tropical cyclones Winifred, Vance and
Ingrid (Walker, 1995; Cyclone Testing Station, 1999; Henderson, 2005).
The commonly used insurance damage curves originally compiled by Walker
(1995) show up to a 5-fold improvement in the likely damage costs when
comparing pre and post code buildings. This shows that we have a great
capacity to adapt to change to ensure that our communities remain safe
and insurance affordable in the future.

Building codes are focused on minimising harm to people; the impacts of
physical/economic damage appear to be outside the explicit scope of the
existing building codes. However the impacts of physical and economic
damage are becoming increasingly significant, with broad and potentially
long lasting impacts. The Sydney hailstorm of 1999 caused roofing damage
that took many months to repair, which can significantly impact the
lives of those living in damaged homes. It took more than 6 months from
the incident to finalise half of the buildings claims and more than a
year before 80% were finalised. The social impacts of this through
inconvenience and temporary loss of quality of life are potentially
significant and must be factored into a full assessment of the impact of
hailstorms on communities. The economic cost to communities must also be
considered.

Figure 4 -- Time to finalise claims from the 1999 Sydney hailstorm

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Two examples of climate change adaptation activities related to building
codes, which IAG is involved in are our sponsorship and work with the
Cyclone Testing Station, and our 'Hail Gun' project

**Cyclone Testing Station (CTS)**

IAG has committed to a 3 year sponsorship of the CTS and is working
closely with the CTS to understand the susceptibility to damage of
different building types. Currently, IAG is funding work to understand
the vulnerability of residential and commercial buildings to tropical
cyclones. The main output of the work is to establish the likely damage
costs to buildings from varying wind speeds which can then be used to
determine insurance risk premiums. Our hope is that the research
findings, in conjunction with detailed climate change modeling, will
also provide a valuable assessment of possible building code performance
in a future climate.

**Materials Impact Testing ('Hail Gun' Project)**

IAG's technical research team have tested the susceptibility of roofing
materials to damage using a 'hail gun,' a device which replicates the
impact of a hailstone hitting a building. Varying hailstone sizes have
been tested, ranging from minor events to hail similar in size to
Sydney's 1999 hailstorm To date, the programme has tested corrugated
steel, concrete, terracotta and slate tiles of various ages. Other
roofing materials, solar hot water panels and photovoltaic cells are
also scheduled to be tested. The research results can be used to
estimate the direct financial impact of hailstorms, particularly the
increased risk as a result of climate change. Such research could then
be used for an assessment of building codes in relation to hailstorms.

There is great potential for the insurance industry to work with the
ABCB and other stakeholders to assess building codes in relation to
physical and economic impacts of climate change. The goal would be to
develop a cost benefit analysis of changes to building codes which would
help communities adapt to climate change impacts, and which reduce the
likelihood of extreme physical / economic damage, and their associated
societal impacts.

### 8. What needs to happen

Aside from a few recent exceptions, there has been little or no
interaction between insurers and planning agencies or rule makers, to
proactively deal with weather risk and the likely impacts due to climate
change. Some discussions with government agencies have occurred but no
real partnerships to create change have eventuated. To date IAG has been
acting more in an advocacy role -- presenting at forums / seminars and
discussing the issues. We need to move beyond this to developing
partnerships that address each of the three key responses --
understanding, mitigation and adaptation. There is no insurance industry
representation on the boards where important decisions are being made in
regards to planning and building codes. Yet the economic impacts of
extreme weather events, represented by insurance losses, are an
increasingly important factor in determining appropriate response
strategies.

In the past the insurance industry has not been proactive on natural
hazard risk and has not adequately voiced concerns and issues. For
example, damage incurred from the Wollongong floods of 1998 was
essentially a result of poor planning decisions over prior decades. Yet
the insurance industry still has not become more pro-active in
contributing to planning decision making in this region. The past has
resulted in much finger pointing and apportioning blame to others; we
need to ensure that all stakeholders are involved up front in decisions
involving urban planning and building construction. Insurance is an
integral part of an effective risk management strategy, but risk
management can no longer equate to insurance.

### 9. Conclusion

IAG believes climate change is already occurring as a result of the
emissions of GHGs from human activity. Climate change could reduce our
ability to assess risk and offer affordable future insurance premiums.
We have based our opinion on the vast observational evidence and a
collection of our own and other world climate modeling projections. IAG
is using a multifaceted approach to tackle potential impacts of climate
change through a process of understanding the impacts by monitoring and
driving scientific research; mitigation processes which aim to reduce
the amount of GHG emissions and changes to extreme weather; and
adaptation strategies that reduce the impacts of climate change.

Of the three responses that IAG believes are essential -- understand,
mitigate and adapt - adaptation is the one which has received the least
attention to date. Some of the impacts of climate change may involve
only slight changes in the storm intensity but have the potential to
cause large increases in potential damages through the breaking of
critical thresholds. Understanding how quickly changes to extreme
weather and its impacts at the local scale is a key to planning a
community's response. One such response is a regular review of building
codes to ensure they continue to meet community needs.

IAG realises that it needs to be more proactive in developing
partnerships that address each of the three key responses. We also
realize the importance of our involvement in planning processes. Through
these efforts we hope that climate change can be addressed and future
insurance remains affordable -- something we believe is a fundamental
community need.

# References

Australian Greenhouse Office (2004), *National Greenhouse Gas Inventory
2002*, Australian Greenhouse Office, Canberra

Australia Institute (2001) *Australians the Worst Polluters*, media
release accessed via <http://www.tai.org.au/> on 25 July 2005.

Cyclone Testing Station (1999). *A Structural Assessment of the Effects
of Cyclone Vance on Houses in Exmouth WA*. Technical Report No. 48 July
1999, School of Engineering James Cook Uni

Henderson D (Manager, Cyclone Testing Station) (2005), pers comm., 15
June.

Intergovernmental Panel on Climate Change (IPCC) (2001). *Climate Change
2001: The Scientific Basis* -- Contribution of Working Group 1 to the
third assessment report of the IPCC. Cambridge.

IPCC (2001b) *Climate Change 2001: Working Group II: Impacts, Adaptation
and Vulnerability* -- Contribution of Working Group 2 to the third
assessment report of the IPCC. Cambridge.

Mills, E., E. Lecomte and A. Peara, 2001. *US Insurance Industry
Perspectives on Climate Change,* February 2001, US Dept of Energy,
Berkeley, California.

Pittock, B (2003). *Climate Change: An Australian Guide to the Science
and Potential Impacts*, Australian Greenhouse Office, Canberra.

Planning Institute of Australia, (2004). *Sustainable regional and Urban
Communities Adapting to Climate Change*, Planning Institute of
Australia, Queensland Division, Brisbane.

UK Met Office (2005),
*http://www.met-office.gov.uk/research/hadleycentre/* accessed 25 July
2005.

UK Parliament (2004), accessed via
[*http://www.publications.parliament.uk/pa/ld200304/ldselect/ldeucom/179/4031003.htm*](http://www.publications.parliament.uk/pa/ld200304/ldselect/ldeucom/179/4031003.htm)
on 25 July 2005.

United Nations Environment Program Finance Initiative (UNEP FI), (2002).
*Climate Change and the Financial Services Industry*. United Nations
Environment Programme Finance Initiatives Climate Change Working Group.
[http://www.unepfi.net](http://www.unepfi.net/)

Walker G (1995) *Wind Vulnerability Curves for Queensland Houses*,
Alexander Howden Reinsurance Brokers, Australia.

[^1]: Bill Hare, Potsdam Institute for Climate Impact Research,
    international conference on climate change 2005 UK