Catastrophe risk modelling firm RMS is set to incorporate climate change more fully into its main suite of risk models, with climate change models expected for the RMS North Atlantic Hurricane, Europe Inland Flood and Europe Windstorm models by June.
It’s an important step, as the insurance and reinsurance focused catastrophe risk modellers have been falling behind when it comes to providing the level of climate change and climate related insights companies and their investors are now demanding.
This is especially important for the insurance-linked securities (ILS) market, which is increasingly looking to embed environmental, social and governance (ESG) practices into their business models.
RMS said today that its new suite of climate change models will help clients to, “assess the near and long term impacts of climate change on physical assets and their businesses, in order to make the best possible risk and financial decisions.”
RMS CEO, Karen White commented, “Today there are no robust or consistent frameworks that can quantify the physical risks posed by catastrophes in a changing climate at the depth required. The innovative suite of RMS Climate Change Models changes that, giving the market a powerful new set of tools. With increasing Board-level attention, stakeholder scrutiny, and regulatory pressure, businesses need to operationalize climate change analytics to make better decisions and enable better transparency. It is clear that the financial impacts of climate change are not solely a “future problem”.
“The increasing incidence of wildfires, floods and hurricanes mean that climate change insights need to be incorporated into financial decisions that are being made today, in parallel with long term strategic planning and meeting increasing regulatory, environmental, social and governance (ESG) and TCFD reporting requirements, and investor and customer demands. This necessitates a climate change framework and models fully consistent with today’s catastrophe risk analytics and one which addresses the challenges posed by physical climate change risk and its broad impact across all relevant time scales – from today through to the end of the century.”
The majority of RMS’ catastrophe risk models already incorporate the impact of climate change up to now, but RMS recognises that insurance, reinsurance and ILS market interests require something more, a forward-looking view of how climate change may influence peak catastrophic perils.
“The new RMS Climate Change Models take our existing capabilities further with forward-looking predictive insights and analysis,” the company said. “The new Climate Change Models empower RMS’s economic modeling framework with the best climate science consensus, including from the Intergovernmental Panel on Climate Change (IPCC).”
RMS said that climate change models will be generally available in June for its major peril models, North Atlantic Hurricane, Europe Inland Flood and Europe Windstorm.
Additional risk models and geographies will be updated to include climate change models soon after and the company is also offering climate change specialist advisory and consulting expertise and regulatory, ESG and TCFD support.
Eric Letourneau, SVP, Group Head of CAT Accumulation Management, QBE, commented on RMS’ news, “The insights on climate risk provided by RMS have enabled us to better understand climate-related risks and opportunities for our business, to report those insights to financial stakeholders, and to develop and test strategy for our business. We can embed these analytics in our business processes, confident that we have consistency with how we measure underwriting risk and capital requirements now and in the future.”
RMS said that its Climate Change Models will feature:
- Probabilistic modeling to capture events across different climate change scenarios
- The ability to adjust time horizons and Representative Concentration Pathways (RCPs)
- A proprietary industry and economic exposure database to deliver more accurate and impactful climate change models
- Embeddable software which integrates into existing workflows to facilitate seamless and easy operationalization
- Consulting and additional expertise supporting regulatory submissions and activities, and providing insights from these new models today.