Regulators have different approaches, resulting in a lack of consistency and hindering re/insurers efforts
A new report outlines best practices for modelling the physical risks of climate change, addressing the challenges facing regulators and the (re)insurance industry as they look to model the impacts of climate change.
Regulators have different approaches when it comes to guiding (re)insurers to deal with climate change, resulting in a lack of consistency and inadvertently hindering (re)insurers in their efforts to model climate change risks as accurately and completely as possible.
Lighthill has identified this conundrum and responded with a report that details best practice methodologies based on industry modelling and reporting standards.
It examines what a warmer world implies for (re)insurers, and offers best practice guidance for how catastrophe models can be used to estimate climate change impacts across different time horizons.
Modelling natural hazards over time
Lighthill chief executive Dickie Whitaker said: “The world of risk is evolving ever faster and, to ensure that appropriate risk modelling is used moving forwards, a collaborative and harmonious approach must be found to eliminate the cost of complying with the requirements of (re)insurers which, if not addressed now, will ultimately spiral and impact the effectiveness of regulated entities.
“We need more models to be able to reflect changes to the climate already taking effect and we need greater appreciation for which approaches suit which types of questions.
“With a focus on the learnings from the latest IPCC Assessment Reports, plus Best Practices in Modelling Climate Change, we hope that industry stakeholders will find this open and collaborative paper invaluable in helping them better understand and update their models to factor in the risks of climate change, and how best to model weather hazards over time.”
Jeremy Hindle, lead report author and director & consultant – Risk, ESG, Climate, Data Standards & Modelling, said: “The impacts of climate change, especially for perils such as severe convective storm, flood and wildfire, already presents challenges to ensure that models reflect current climate conditions.
“Predicting how future climate will influence changes in frequency and severity against different pathways, time horizons and temperature changes has created a lack of consensus as to how best to derive decision useful outputs that could provide all stakeholders with what they need.
”As the insurance sector plays such a key role in helping bring financial relief to victims of such disasters, fully understanding and modelling the future impacts of climate change requires a holistic view of all approaches to climate change risk modelling.”