Risk modelling and analytics firm AIR Worldwide has released a new report that studies the potential effects of climate change on atmospheric perils and extreme weather conditions of relevance to the insurance, reinsurance and ILS sector, finding a general expectation that losses may become more frequent and more intense.
Explaining the rationale behind the study, Dr. Peter Sousounis, assistant vice president and director of meteorology at AIR Worldwide, said; “Many in the insurance world are paying increased attention to climate change in light of reports of increasing variability of atmospheric perils such as windstorms and floods.
“Meanwhile, regulators and rating agencies are beginning to ask companies to disclose how they are incorporating climate risk into their decision-making processes. As a result, clients have asked AIR to keep them apprised of the current state of the science regarding climate change impacts on extreme weather.”
The result is a study titled ‘Climate Change Impacts on Extreme Weather,’ a report that examines climate change and its effects on atmospheric perils of relevance to catastrophe modeling and the insurance, reinsurance and insurance-linked securities (ILS) sectors.
The study found a general expectation that the frequency and intensity of some of the most potentially impactful weather events to the re/insurance and ILS sector is likely to increase.
The report concludes that while the overall number of tropical cyclones and extratropical cyclones may decrease, the frequency and intensity of the most “strong to extreme” storms (such as Saffir Simpson Scale Categories 4 and 5) are expected to increase.
AIR said that projections suggest that there will be an increase in the frequency and intensity of most of the other weather phenomena that it reviewed in the study, including severe thunderstorms, wildfires, inland floods and coastal floods.
Where climate change is expected to have the greatest impact though is in the flooding risks, with more frequent and more intense coastal and inland flooding anticipated.
However, significant uncertainty exists around how climate change will affect “strong to extreme” events (50- to 250-year return period) compared to the more common “weak-to-moderate events” (2- to 10-year return period), which AIR says is because existing historical data is insufficient and numerical climate models do not simulate the most extreme events particularly well.
AIR notes on the above that there could be signficant regional variation in the outcome, which reflects the considerable uncertainty in projecting just what effect a warmer climate may have on atmospheric weather patterns and resulting extreme events.
The report, downloadable here, co-authored by Dr. Sousounis and Dr. Christopher Little from AIR’s sister company Atmospheric and Environmental Research (AER), provides a summary of some of the key elements of climate and climate change and its relevance for weather extremes, with a review of the latest scientific knowledge about how specific weather extremes may be affected by climate change, and discusses some of the complications and uncertainties inherent in the results, offering a possible path forward for the developers and users of catastrophe risk models.
The insurance, reinsurance and ILS industry may face more frequent and intense losses due to severe weather, if the climate change research proves accurate, but the need for risk capital will increase as well as the pricing of protection if the industry remains aligned with any accepted change in exposure levels.
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