Understanding Extreme Geohazards: The Science of the Disaster Risk Management Cycle

European Science Foundation Conference
November 28 to December 1, 2011, Sant Feliu de Guixols, Spain

The implications of climate change on the insurance industry and the Israeli economy

Ayelet Davidovitch
U Natural Resource and Environmental Research Center University of Haifa, Mt. Carmel, Haifa, Israel, ayelet.davidovitch@gmail.com

The insurance industry has a major role in the efficient and sustainable development of modern economies. Climate change is considered one of the most severe risks which could affect the whole socio-economic structure with emphasis on the insurance industry. During the 21st century, substantial changes in climate around the world are expected. Moreover, the changes in the Mediterranean basin are expected to be extremely significant, which could have adverse consequences for the insurance market and the Israeli economy at large (Baror and Golan, 2008).

An incomplete list of potential impacts includes (Axelrod, 2010):

  • a)Sea level rise and more frequent extreme weather events which will cause coastal land loss leading to capital loss and increase in insurance costs.
  • b)Extreme precipitation events - increased water demand, increased frequency of extreme events. c)Sharpen water shortage.
  • d)Changes of pattern of tourism.
  • e)Decline in energy demand for heating and increase in energy demand for cooling.
  • f)Effects on ariculture cultivation - Increase in agricultural pests, plant diseases and weeds, changes in crop yields.
  • g)Changes in biodiversity, especially in the Mediterranean Sea.
  • h)Effects on human health: Spread of illnesses by vectors and increased illnesses caused by heat.

These effects will cause changes in consumption patterns and even in the means of production which may lead to structural changes in the economy, in the terms of foreign trade and eventually decline of the GDP. One of the most vulnerable industries to climate change is the insurance business. Significant damages to public and private property can affect its profitability and its redemption abilities - the ability to pay installments on losses as a result of disasters (Axelrod, 2010). The research is based on the methodology developed by Bosello and Roson (2007) with modifications to employ the Israeli General Equilibrium Model (IGEM), developed specifically for the Israeli economy-wide analysis.