Cat modelling impacted by climate change
Climate change has made a significant impact on the catastrophe modelling industry, a leader in the sector told a sold-out audience at the inaugural Bermuda Climate Summit.
Industry veteran Karen Clark is the founder and CEO of cat modellers Karen Clark and Co.
Cat modelling, which has grown up alongside the development of Bermuda’s reinsurance sector, is the global standard technology for estimating the risk of extreme events, providing insurers and reinsurers with estimates about how likely they are to suffer losses of varying amounts.
That assists with the pricing of risk, the underwriting of risk, and the transfer of risk between insurers and reinsurers.
Ms Clark said the process traditionally involved estimating the losses in a particular year based on current exposures. Hazard did not change much year to year, and consequently models did not have to be updated that frequently.
But climate change and related risk has forced an altered approach.
She said: “Now, as a catastrophe modelling industry, we need to be on top of not just what’s happening with property exposures, but what’s happening with the climate.
“It’s a big issue, and it is very challenging because we know the climate is changing, we know how much temperatures increased since 1900, we know what the impacts are going to be on some of the major perils – hurricanes, wildfires, floods.”
Ms Clark said modellers know that frequency and severity are changing, but added: “But how do we quantify that, how do we put a number on that in terms of what that means in terms of the insured losses?
“We really assimilate and work with all the great science that is going on around the world, and bring that into our models to quantify not only what the climate has done today, but what it’s likely to do in the future.
“We now have not just models that say what the risk is today, but what it’s likely to be under given emission scenarios, multiple scenarios, in 2030 and all the way up to 2050. And obviously it makes a big difference.”
Based on today’s property values and climate, Ms Clark said, the average expected loss annually for global weather-related perils is about $100 billion, but a vast protection gap means that insurance covers less than 50 per cent of global property damage from catastrophes worldwide.
Ms Clark was sitting on the panel, Observations from the Cutting Edge of Climate Developments, moderated by Stephen Weinstein, chairman of the Bermuda Business Development Agency.
Joining her on the panel were William Curry, president and chief executive officer, Bermuda Institute of Ocean Sciences; Mark Guishard, director, Bermuda Weather Service; and Peter Schlosser, vice-president and vice provost of global futures at the Julie Ann Wrigley Global Futures Laboratory at Arizona State University.
Dr Curry said BIOS has sent a research vessel 18 miles offshore south east of Bermuda every two weeks since 1954 to measure the changing vital signs of the ocean.
Surface water temperatures have risen over that period, and since the early 1980s, the level of CO2 in the oceans has been going up.
Today, Dr Curry said, measurements are being taken globally by some 4,000 autonomous robots that come to the surface every ten days and report on the properties of the upper two kilometres of the oceans, enabling hurricane prediction centres to identify warm pools of water that will intensify hurricanes.
He said BIOS speaks to two autonomous vehicles currently out on the water about eight times a day, giving it real-time updating on changes going on in the ocean.
Dr Curry added: “What we have been doing for a century slowly, methodically, can now be done globally, robotically and at major scale, so our understanding of the oceans is increasing significantly and quickly.”
The impact of weather, climate and water-related disasters on people and property was underlined by Dr Guishard, who said the World Meteorological Organisation reported last year that 115 people have died daily on average over the last 50 years, while there has been just over $200 million of economic losses on average daily over the same period.
But he said: “There is no such thing as a ‘natural disaster’. It’s when people, infrastructure, systems, are exposed and vulnerable to the natural hazards that we get risk – and that we get that risk realised in a ‘natural disaster’ or catastrophe.”
He added that recent studies have indicated that even a one-degree Celsius increase in sea surface temperature in the western North Atlantic Ocean “leads to something like 18 mile an hour stronger storms, which can push a hurricane into the next category up”.
Mr Schlosser said the nature of the behaviour of hurricanes is changing, citing last year’s Hurricane Ida as an example.
He said: “Ida was moving towards New Orleans and we were all worried about ‘would we have a second Katrina?’.”
But he added: “The biggest loss in life was actually in New Jersey.”
After inflicting wind damage, he said, the mighty storm held a massive amount of water, carrying it until it hit a cold front, and dropped the precipitation.
Mr Schlosser added: “So we see these stalling hurricanes, that are massive, that hold more water, and that is something that scientifically we have not yet fully understood.”
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