How Climate Science Unites with Technology to Drive Resilient World

January 13, 2023 5 mins

How Climate Science Unites with Technology to Drive a More Resilient World

Academic research collaboration with the insurance industry enhances understanding and creates actionable climate change insights.

Key Takeaways

As the quality and quantity of tools measuring physical risk have increased, so has the focus on emerging risks and the threat posed by climate change.
More sophisticated catastrophe modeling help organizations gain a more accurate loss estimate, better manage their response and mitigate loss.
Actionable insights can directly integrate into models to inform better decision making for both the private and public sector.

Navigating the impact of climate change means the insurance industry must prepare for the risks of tomorrow, equipped with tools to measure risk both for a single year or decade and to mid-century and beyond. This is where academic research and innovation can unite to better inform businesses, governments and communities.

Catastrophe risk modeling is an integral part of the insurance ecosystem to quantify the potential impact of events before they occur and effectively mitigate severe losses that threaten solvency, insurer obligations to their customers and our communities. As the quality and abundance of tools measuring physical risk have increased over previous decades, so too has the focus on emerging risks and the evolving threat posed by climate change.

More sophisticated methods of catastrophe modeling help organizations gain a more accurate loss estimate, better manage their event response and mitigate loss by having claim adjusters on the scene as soon as possible. It also helps businesses make important decisions about their risk management framework, which may include the use of alternative risk solutions such as captives or parametric insurance.

Incorporating Climate Projections into Current Models

The need for forward-looking climate projections introduces new dimensions of uncertainty. What was once limited to understanding where a hurricane might occur and its potential impacts, has now expanded to understand how human behavior and policy action may curb (or exacerbate) the ramifications of climate change and the associated impact on extreme events, as well as where those events could stretch beyond our current physical understanding of peril activity.

Academic collaborations are instrumental in bringing emerging research directly into the insurance industry to enhance understanding and create actionable insights. These can directly integrate into models to inform better decision making for both the private and public sector.

A growing global network of academic climate experts working with Aon’s analytics and Impact Forecasting model development team include Columbia University (global tropical cyclone), University of California, Merced and University of California, Los Angeles (US wildfire), the Karlsruhe Institute of Technology (KIT - European flood and windstorm), and the University of Illinois Urbana-Champaign and Central Michigan University (US Severe Convective Storm), among others.

What Have we Discovered so Far?

U.S. Hurricane:

Higher aerosol emissions lead to fewer tropical cyclones, according to research from Columbia University. Aon’s academic collaborators have explored different ways to quantify moisture in the air and ran Shared Socioeconomic Pathways scenarios with different climate policy assumptions to assess the impact of varying levels of future greenhouse gases and aerosols. This climate data will be incorporated into Aon’s tropical cyclone models to better understand future financial losses.

U.S. Wildfire:

The recent heavy rains on the west coast have put just a dent in the historic drought conditions currently ongoing in the Western U.S. and Canada.1 The drought is consistent with the signal we see in many state-of-the-art climate models — a hotter, drier West. Combined with the increased risk of human-induced ignition due to development in the wildland urban interface, these drier conditions look to significantly impact the fire risk for many areas. Exactly how these changes translate into changes in burned area and insured loss is the focus of our continuing collaboration with the University of California, Merced and University of California, Los Angeles.

European Flood and Windstorm:

Atmospheric circulation patterns play a key role in driving extreme weather events, such as flood and windstorms but with KIT we found that extreme hydrological events strongly depend on catchment size and physical features of the terrain. For example, heavy rainfall in highly permeable areas can cause insignificant flooding, while the same rainfall in areas with narrow valleys can cause a catastrophe — as confirmed by the devastating Bernd flood in Germany in July 2021.

Practically Applying the Research

For businesses and communities, this data and analysis is about bringing more opportunities to help de-risk climate-focused innovations such as low-carbon technologies and new forms of renewable energy, as well as inspiring more relevant coverage and risk management for a more resilient future. For insurance companies, having the insight to develop climate action strategies for underwriting and reinsurance is of primary importance when considering practical actions to be taken in response to evolving risk. Communicating the “why” and “how” is also imperative, informing internal and external stakeholders, including boards of directors, investors and employees, in addition to meeting regulatory needs and developing robust responses to disclosure requirements.

Together, we will be able to achieve so much more as we navigate climate change and unlock new opportunities.

For more information read Aon’s 2023 Weather, Climate and Catastrophe Insight Report

¹ California and the Rockies are inundated with rain and snow. It’s still not enough to ward off the West’s catastrophic drought

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