Determining the Impact of Climate Change on Insurance Risk and the Global Community

Climate Change poses a key emerging risk to the insurance/reinsurance industry.  The industry, in its critical role as society’s risk aggregator/distributor, is positioned right in the forefront of a changing risk landscape due to climate change.  Actuaries are entrusted with the task of studying and evaluating the uncertainty of future events and their financial consequences.  However, the complexity of climate change impacts poses unique challenges to the risk assessment/quantification process.  The American Academy of Actuaries, the Canadian Institute of Actuaries, the Casualty Actuarial Society and the Society of Actuaries are partnering on a research project to develop an index to help raise awareness of the potential risks associated with climate change and the risk management implications within North America and globally.  The index would highlight important indicators of climate change such as: Temperature Extremes, Floods, Droughts, Sea level rise and Hurricane Intensity.  In this session, the findings of phase 1 of a two-phase study regarding the index of the key climate change indicators will be presented.

The index is to be a resource for actuaries and others in developing predictive models for potential climate change related losses or opportunities as well as for risk management strategies.  Actuaries might utilize the data and measures of the indicators and index in evaluating the potential risks of climate related changes to their employers.  For example, a high index for increased hurricane intensity might indicate the potential for increased property damage, personal injury or death.  In addition, the data and index might be useful to the American Academy of Actuaries and others in public policy discussions.

The session will also discuss actuarial perspectives on the use of climate change information in risk management and decision making.  It will outline insurance product opportunities and underwriting/balance sheet risks that could emerge as a result of climate change. It will also explore how well-equipped actuaries and the insurance industry are in dealing with this challenge.  There will also be a discussion on recent developments in the evolving area of regulatory oversight for monitoring and tracking of climate change risks.