such as Figure 3 could be modeled against
claims data to help assess the risk — and
then companies can incorporate their insights into pricing, underwriting, product
development or claim department strategy. Monthly ACI data is also available.
The risk management implications
of climate change will only continue to
grow if current trends continue. Companies that incorporate climate data in their
strategic planning will have a competitive
edge. They will also be better able to answer climate disclosures and provide convincing information to regulators, shareholders and lenders that will demonstrate
that they are effectively managing risks.
Climate change will have varying ef-
fects by class of business; property, ca-
sualty, life and health insurers will iden-
tify different risks and opportunities.
Reinsurers will also be interested to know
how their reinsureds are monitoring this
aspect of their business. The ACI should
also be useful to non-insurers in their fi-
nancial planning and risk management.
Coverage decisions, such as where and
whether to provide property or flood insur-
ance, can be informed by historical climate
statistics. Actuaries are increasingly using
predictive models to measure correlations
and trends for use in pricing, underwriting,
claims management, marketing and enter-
prise risk management. The Actuaries Cli-
mate Index data is an important new input
to these models. Where possible, the index
components measure extremes, rather
than averages, because extremes have the
largest impact on people and property.
Some might say that climate change is
gradual and should be a manageable risk
for the insurance industry. At a presenta-
tion to actuaries in 2015, the audience was
polled about how concerned the property
and casualty insurance industry should
be about the risks of climate change. Of
the 121 poll respondents, 43 percent indi-
cated that the risks of climate change are
inadequately addressed. Is your company
in this group?
The Actuaries Climate Index and the
Actuaries Climate Risk Index will be useful additions to the analytical toolkit of insurers and other companies as they look to
manage the risks of a changing climate.
Douglas J. Collins is a retired actuary and
chair of the Casualty Actuarial Society’s
Climate Change Committee. He worked for
eight years at The Travelers, and spent the
remainder of his career as a consulting actuary and principal with Tillinghast, Nelson &
Warren, and its successor organization, Towers Perrin in the U.S., Bermuda and Europe.