Who is IAG?

• Largest general insurer in Australia and New Zealand• First started in New South Wales in 1925• Many national and state-specific brands• Gross written premium 2002/03 A$5.2bn (up 45%)

37% Motor Property

20% Home

15% Commercial Short Tail

12 % Motor Personal Injury

Sustainability & Climate Change• Climate change will have a significant influence on

insurance risk assessment and profitability

• Sustainability is one of IAG’s core valuesEconomic imperative

Long term business sustainability

Social responsibility

Australia’s Most Costly Insured Natural Disasters:-16 of 17 are weather related- 8 are hailstorms

0

200

400

600

800

1000

1200

1400

1600

1800

Hails

torm

Sydn

ey Ap

ril 19

99

Earth

quak

e New

castl

e 198

9

Cyclo

ne Tr

acy 1

974

Hails

torm

Sydn

ey M

arch 1

990

Cyclo

ne W

anda

1974

Bush

fires

Ash W

edne

sday

1983

Bush

fires C

anbe

rra Ja

n 200

3*

Hails

torm

Brisb

ane J

an 19

85

Hails

torm

Sydn

ey Ja

n 199

1

Hails

torm

Sydn

ey O

ct 19

86

Cyclo

ne M

adge

1973

Cyclo

ne Al

thea 1

971

Flood

s Syd

ney N

ov 19

84

Hails

torm

Sydn

ey N

ov 19

76

Hails

torm

Sydn

ey Fe

b 199

2

Hails

torm

Armi

dale

Sept

1996

Bush

fires

Hoba

rt 196

7

Insu

red

Loss

es in

$M

illio

ns (2

001

pric

es)

Early Signs of Global Warming !• 2002 Australian drought – proven climate

change link• 3 of the worst hailstorms in Australia’s history

occurred since 1990• 3 of the most intense cyclones ever recorded

in Australasia occurred in the last decade• Cyclone Zoe (Solomon Islands, March 2003)

may be most intense ever for that region

Small changes in climate can increase hazards dramatically

17-28% increase bushfires1 °C mean summer temperature increase

Wildfire

25% increase in evaporation leading to increased bushfire risk

1.3 °C maximum temperature increase

Drought

Flooding return period reduced from 100 years to 17 years

25% increase in 30 minute precipitation

Floods

Increase of 5-10% in cyclone wind speeds

2.2 °C mean temperature increase

Windstorm

Resulting Change In Hazard

17-28% increase bushfires1 °C mean summer temperature increase

Wildfire

25% increase in evaporation leading to increased bushfire risk

1.3 °C maximum temperature increase

Drought

Flooding return period reduced from 100 years to 17 years

25% increase in 30 minute precipitation

Floods

Increase of 5-10% in cyclone wind speeds

2.2 °C mean temperature increase

Windstorm

Resulting Change In Hazard

Change In ClimateHazard

Source: Mills et al, 2001

Small changes in hazard

intensity can lead to

multiple increases in damages

IAG Experience:Wind Speed vs. Insured Damage

0

100

200

300

400

500

600

700

Under 20 knots 20-40 knots 40-50 knots 50-60 knots

% In

crea

se in

Dam

ages 25% increase in peak gust causes 650%

increase in building damages

NSW, NRMA Building Insurance only

Source: Sydney Morning Herald 25th August 2003

Hail Storms: Small increases in hail size = large increases in losses

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

$160,000,000

Hail

Hail/W

ind Hail

Hail

Hail

Hail

Hail

Rain/

Wind Ha

ilHa

ilRa

in/Wi

ndWi

nd/Ha

ilHa

ilRa

in Hail

Rain/

Wind

Rain/

Wind Ha

ilHa

ilHa

il

Top 20 storm events for IAG NSW Building Insurance

9-11cm Maximum Hail

4-5 cm Maximum Hail

6-8 cm Maximum Hail

3-4 cm Maximum Hail

Source: Swiss Re 2000

18/3/1990

14/4/1999

21/1/1991

3/10/198628/10/1995

Many people and properties at risk

Sydney,Australia

IAG’s Hailstorm Modelling & Climate Change• How will hailstorms be affected by

climate change?• Climate Change means that historical records

become less relevant• State of the art modelling• Initial analysis based on the April 1999 event• How much larger or more intense is possible ?• How much more likely are they to occur ?

How could this happen?• Produced by very small changes to three key parameters

Wind-shear

Sea surface temperature

Atmospheric stability

• Sea surface temperature is absolutely related to climate change;

the other two are believed to be related

• Small changes in climate can have dramatic impacts!

UNEP FI Insurance Advisory Committee• IAG is a member and is committed to working with a

cross section of the insurance industry

• Identify and promote innovative insurance products

which reduce environmental risk and result in

economically and environmentally sustainable

outcomes

• Coordinated by the Victorian EPA

Australian Scene• Increased involvement from financial sector

New UNEP FI signatories

• Financial Services industry role in making policymakers aware of

the impacts of climate change and the need to address it with

urgencyBalance the heavily promoted views of the energy & manufacturing

industries

• Exploring the role of Carbon Trading

For more information www.epa.vic.gov.au/programs/unep

Conclusion• Our core business is directly affected by

climate change• Small changes in parameters can increase

damages dramatically• Because we insure risks, insurance is a

barometer of the impact of Climate Change on the economy

• Truly sustainable outcomes will require multi-stakeholder involvement

Who is IAG?Sustainability & Climate ChangeAustralia’s Most Costly Insured Natural Disasters:-16 of 17 are weather related- 8 are hailstormsEarly Signs of Global Warming !Small changes in climate can increase hazards dramaticallySmall changes in hazard intensity can lead to multiple increases in damagesIAG Experience:Wind Speed vs. Insured DamageHail Storms: Small increases in hail size = large increases in lossesIAG’s Hailstorm Modelling & Climate ChangeHow could this happen?UNEP FI Insurance Advisory CommitteeAustralian SceneConclusion