Aon has announced it is collaborating with Columbia University to create a climate change solution for its Impact Forecasting tropical cyclone catastrophe model suite. This enhancement will enable insurers to quantify climate risk in their portfolios and make adjustments that will inform better decisions on pricing, investments and exposure management both today and over the long term.
In the past decade alone, tropical cyclones resulted in USD236 billion in insured losses from more than 370 separate storms around the globe, of which events in the United States accounted for 54 percent of industry payouts. As the financial and humanitarian impacts from the peril grows, insurers need to understand how climate change, coupled with growing populations and exposures, will further impact their portfolios to continue providing cover in times of need, help customers better manage physical risks and address the underserved with more affordable and scalable products.
To navigate the growing volatility of climate risk and build upon Impact Forecasting’s tropical cyclone model suite, Aon and Columbia University, a preeminent research university for weather and climate science, are working together to understand the impact of climate change on physical risk and human behavior in three phases:
- Phase 1: Initially, Columbia will apply its research-driven frequency adjustment to Aon’s Impact Forecasting U.S. hurricane event set to highlight differences and provide a current view of tropical cyclone frequency and intensity.
- Phase 2: Expanding the remit of the collaboration, Aon’s Impact Forecasting team will create a new U.S. hurricane event set based on the university’s Columbia Hazard Model output. This model will implement updated climate change scenarios from the Intergovernmental Panel on Climate Change’s upcoming sixth assessment report to quantify varying timescale changes to insurers’ portfolios.
- Phase 3: Aon will incorporate new event sets for additional global ocean basins, including the Northwest Pacific, South Pacific and Indian, into new Impact Forecasting tropical cyclone models for Japan (part of the current Asia typhoon model) and Australia to provide an updated view of risk.
Steve Bowen, director & meteorologist for Aon’s Impact Forecasting team, explained, “Columbia’s expertise in climate modeling and forecasting is a natural complement to the work we do at Aon. Tropical cyclones remain the costliest and most visible peril and showing different climate change scenarios through the lens of an Impact Forecasting model will help our clients see how future cyclone behavior and frequency may differ from today’s current atmospheric and oceanic environment.”
George deMenocal, U.S. chairman of Aon’s Reinsurance Solutions business, added, “Climate risk is an urgent systemic issue and re/insurers need to understand how it will impact their portfolios through data and analytics. A multi-model approach is a necessary next stage in the evolution of our market – with the Columbia collaboration representing just one bold step. The new insights will be critical as Aon continues to work with re/insurers to develop a bespoke view of catastrophe risk. This means understanding underlying assumptions, acknowledging uncertainty in estimates and incorporating bespoke adjustments into models when appropriate.”
“We started building our tropical cyclone model several years ago with the hope not just that we could advance the science, but that our results would be taken up by real decision-makers and have a concrete positive impact. This project is a big step forward in realizing that goal,” said Lamont-Doherty Earth Observatory scientist Adam Sobel, co-director of Columbia’s Initiative on Extreme Weather and Climate. “Aon is a global leader in managing disaster risk, and we’re so excited to work with our colleagues there to understand the climate change signal in tropical cyclone activity and inform better decision-making.”
Columbia recently announced the opening of the Columbia Climate School, which will tap into various centers on campus, including the Lamont-Doherty Earth Observatory, the International Research Institute for Climate and Society, the Center for Climate Systems Research, and the Center for International Earth Science Information Networ