Cape Verde-type hurricanes are the worst. They form off the coast of Africa and whip westward across the warm Atlantic. By early September 2004, one of the fiercest storms on record, Hurricane Ivan, had the Caribbean in its sights.

It targeted the Windward Islands first, levelling 90% of all buildings in Grenada, then turned north, passing within miles of Jamaica. Winds reached 133 mph. Rainfall exceeded 35 inches. Mudslides washed out roads. Montego Bay and Kingston flooded. Hundreds of thousands of people were forced from their homes, many of which were destroyed willy-nilly. An estimated 64 people were killed in Grenada and Jamaica and 45,000 left homeless. Damage topped $1.3 billion. Insurance coverage was woefully inadequate.

Can the intensity of this hurricane or any weather disaster, the undeniable melting of the ice caps, increases in ocean temperature and acidity, the bizarre northern hemisphere winter of 2011-12 or any other specific temperature-related phenomenon be attributable to human-induced global warming?

We cannot be certain. But we can be sure that temperatures are increasing and humans are playing a role.

Crass calculations

It’s all well and good for global warming skeptics, making crass political calculations, to wave off any discussion of how to deal with the impact of climate change. At some point someone will have to pay the piper and almost certainly it will be the taxpayer – or the adjuster if those affected are lucky enough to afford and secure insurance. That’s why the insurance industry is sending out danger signals.

Consider Jamaica. Five major storms, between Ivan in 2004 and Gustav in 2008, each left upwards of $1.3m in damages, a significant ongoing difficulty for the comparatively poor nation. Its economy depends on climate-vulnerable industries such as agriculture, fishing and tourism. Scientists at the Geo-Informatics Institute of the University of the West Indies predict a rise in sea level of a minimum two to three millimetres per year during the first half of the 21st century. That could devastate densely populated coastal areas if Jamaica doesn’t prepare.

Facing oblivion

Negril, one of the world’s most gorgeous beaches, faces oblivion without surge protection construction that will cost $25 million. Structural changes to ports and roads to protect Jamaica from sea level rise will cost an estimated $530 million, even without estimating the impact on natural resources, according to the Caribbean Catastrophe Risk Insurance Facility. The CCRIF fears it could be swamped by reinsurance claims if global warming estimates are accurate and proper precautions are not taken.

"Without more aggressive moves, the rest of the world could end up like Grenada and Jamaica, circa 2004." -- Jon Entine

That grim scenario is repeated around the world.  The insurance industry, the world’s primary financial risk manager with $23 trillion in global investments, has growing fears that trouble lies ahead. “Extreme weather is a threat today and a greater threat tomorrow,” says Pete Thomas, chief risk officer at British-based Willis Re, one of the world’s leading reinsurance intermediaries, which joined with Swiss Re and other leading insurers in March to lobby the United States Congress to break the stalemate on addressing climate change.

Weather related industry losses in the US alone have increased more than 50%, to $30 billion, over the past decade. In 2011, the industry faced a record number of catastrophic natural disasters, considered weather related events, that each left more than $1 billion in damage.

Bad year

The Geneva Association, the leading international insurance think tank, dubbed 2011 the “annus horribilis” – a frightening and inevitable sign of things to come, it believes.

“From our industry’s perspective, the footprints of climate change are all around us and the trend of increasing damage to property and threat to lives is clear,” says Franklin Nutter, president of the Reinsurance Association of America.

The challenge is that while European insurance companies are inching towards addressing this challenge, insurers in other countries, particularly in the skeptic-dominated US, seem perfectly willing to offload inevitable clean-ups on taxpayers. According to a 2011 survey by the Coalition for Environmentally Responsible Economies (better known as Ceres), only 11 of 88 companies said they had formal climate risk management policies in place and more than 60% reported having no dedicated management approach for assessing climate change – a suicidal ostrich strategy, say economists and climate experts.

Weather change and its consequences are inevitable. Governments and rating agencies around the world have tools at their disposal to “motivate” short-term-focused insurers to broaden their risk perspectives, with their executives facing personal liabilities if their coverage reserves fall short. Without more aggressive moves, the rest of the world could end up like Grenada and Jamaica, circa 2004.

Jon Entine is a visiting fellow at AEI.