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Original Risk: A Society for Change Agents

RMS expands climate change models to assess long-term impacts


Catastrophe risk modeller RMS has revealed some changes to its climate change models in the U.S. and Japan, designed to address the growing need for climate change analytics in operational underwriting and portfolio management activities.

rms-logoThe need for risk models to account for the impacts of climate change is a hot topic across the re/insurance and insurance-linked securities (ILS) sectors, and has accelerated in recent times on the back of elevated losses from natural disasters, notably secondary perils.

RMS says that its new solutions significantly raise the perils and regions where businesses can strategically employ reliable climate change science.

The new models will be generally available to clients in June for major perils, including U.S. flood, U.S. wildfire, and also Japan typhoon (including tropical cyclone induced inland flood). Additionally, the current North Atlantic Hurricane Climate Change Model will now incorporate sea-level rise projections for the U.S., including the impact of vertical land movement, says RMS.

Alongside supporting underwriting and portfolio management, RMS says that its new models support heightened demands of regulatory requirements, such as the those from the Task Force on Climate Related Financial Disclosures (TCFD), and the Network for Greening the Financial System (NGFS).

The cat risk modeller announced in March of last year that it would incorporate climate change more fully into its main suite of risk models. These new models will complement the existing suite launched in 2021, including Europe Flood, Europe Windstorm, and North Atlantic Hurricane Climate Change Models.

Interestingly, RMS notes that across all of its Climate Change Models, users will be able to simulate the effects of climate change across four greenhouse gas concentration trajectories, at any time between 2020 and 2100, so an 80-year outlook.

The updated models, according to RMS, address the perils most impacted by climate change, and include a range of features, including: 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 making it easy to operationalize within a business; and consulting and additional expertise supporting regulatory submissions and activities, and providing insights from these new models today.

Julie Serakos, Senior Vice President, Model Product Management at RMS, commented: “The effects of climate change up until now are already incorporated into RMS models, including all major peril models. What is becoming increasingly important for businesses is the ability to look forward at the potential impacts of climate change, across portfolios, risks and liabilities.

“There is also a growing need to capture sensitivity around the potential impacts of historical climate change, for example in perils where the consensus on this is limited. Only with detailed, consistent, and reliable information around future climate change risks are businesses and executives able to make informed long-term strategic decisions to best reflect the interests for their business, stakeholders, and regulators.

“As disasters with a climate related footprint, such as flooding, wildfires, and hurricanes, increase in incidence and severity, it is also clear that this is a problem not just for the future, but one that needs to be strategically dealt with today, with the best tools available to give the clearest insights.”

Paul Wilkinson, Head of Aggregation and Risk Strategy at Canopius, added: “The RMS models enable adjusting time horizons for the near- and long-term, combined with the full flexibility and range of the IPCC’s Representative Concentration Pathway (RCP) scenarios. Climate change presents one of the most significant risks to the (re)insurance industry.

“It is important to us to incorporate the latest science relating to climate change into our risk analytics in a manner that can be tailored to our needs and fully integrated across key business operations, such as portfolio management, near-term underwriting, and business planning.”

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