Climate Change Risk
The key research challenges for insurers and academics to address
Climate Change Risk
Much of current insurance risk modelling is based on the assumption of a stable climate, using historical parameters that are increasingly outdated.
The insurance industry must adapt to the increasing volatility of the global climate. It has been reported that data infrastructure is as important as our physical infrastructure in averting the climate crisis but it is being dangerously neglected, with a lack of data-flow leading to misallocation of resources, missed opportunities and the creation of catastrophic risks on global balance sheets.
A collective endeavour across insurers, the scientific community and model vendors is necessary, not only to benefit further from the current modelling framework but also to extend the models’ capabilities. There is a lot of data out there, and there is a pressing need to join the dots and share relevant data between industries. To do this we need to make data open source, but current restrictions on data, for example climate reanalysis, mean data is often not available for commercial purposes.
Key Research Questions
To drive forward better understanding of Climate Change Risk, we have put together a series of questions that we believe need answering. These are as follows:
- What impact could insurance have in incentivising better community planning, and supporting physical mitigation infrastructure such as flood barriers?
- How can insurers best quantify the impacts of climate change using current catastrophe models? And how can we best separate out climate change impacts from other factors such as exposure growth?
- How can insurers best communicate the uncertainties involved with climate change projections and their impacts to key stakeholders?
- How can insurers develop new products to help close the protection gap? What new models and/or datasets are required?
- How has insurers’ liability exposure to climate change events in Europe developed in the last 10 years?
- National government agencies, academic and other research centres collect and manage various databases using a wide range of observing platforms (land, air, ocean, space) and networks – data which is critical for modelling risks and enhancing resilience. Can we make this data accessible for commercial use?
- How does model resolution impact risk estimation?
- What have been the outcomes of public–private partnerships between governments and the financial markets, including the (re) insurance industry and institutional investors, seeking to address climate change mitigation and adaptation?
- What impacts could the insurance industry as an investor sector in its own right have on transitioning to low carbon investments have on society and economies?
- What are the rates of return observed in capital markets from activities related to climate finance?
- Is biodiversity risk insurable and how can the insurance industry engage with public or private organisations to improve biodiversity?
- How can we connect catastrophe models to other systems-based models for economics analysis, food, energy and water management, the provision of critical infrastructure and health services, to engender a better understanding and assessment of the impacts of feedback loops and cascading effects that can further aggravate disaster impacts?
If you are an academic and believe you can help fulfil or progress the questions above, or if you are an insurer wishing to expand or share your own expertise on the topic, please get in contact with us to see how you can help.