In two recently published blogs, Alan Godfrey, Head of Exposure Management at Asta Managing Agency, explored the challenges associated with planning for climate change in the (re)insurance industry.
Two discussion points in the blogs stood out to us at JBA; the lack of tools available to analyse climate change and turn the 'abstract into the actionable', and the challenge of communicating long-term risks of the future to an industry predominantly focused on short-term thinking.
Abstract to actionable
Climate change certainly requires the industry to "think outside the box", as mentioned in the first of Alan's blogs. Tools are needed for us, as an industry, to better understand the longer-term risks we may face in the future due to climate change.
Although there is plenty of research on the possible impacts of a warming climate on precipitation and sea levels, climate change can be a daunting, theoretical topic. It's difficult to take those numbers and convert them into the impact on actual losses due to flood.
At JBA, we have worked with climate experts using the latest science to develop a tool that can translate the "abstract into the actionable": the first UK Climate Change Flood Model.
The model quantifies the potential impacts of climate change on financial flood loss by 2040. It's now possible to look at percentage change across whole portfolios or specific locations to identify areas more, or less, susceptible to flood in the future, to inform pricing decisions and to proactively manage your portfolio.
Forward-thinking approach
Alan summed up one of the key challenges in his first blog, stating that "insurance businesses rarely think more than one year ahead". So why would you consider changes to the climate that will happen in the future?
We're not the only ones talking about climate change - in 2015, the Prudential Regulation Authority released a report on the impact of climate change on the insurance industry. More recently, Lloyds released the July Market Bulletin that stated climate change needs to be an area of focus: "managing agents are expected to recognise any potential impacts [of climate change] on peril frequency and severity". The more recent emphasis on climate change in the UK comes as a result of research that suggests flood events will increase with more extreme rainfall and rising sea levels.
With or without regulator influence, it would be wise to consider the impact(s) of climate change on your business. Using the information and tools available enables you to make informed decisions about where your portfolio may become more, or less, susceptible to flood risk in the future. As such, you can take decisions now that will benefit long term profitability; by implementing gradual changes, you can avoid being caught off guard in the future.
With JBA's new UK Climate Change Flood Model offering one of the missing tools Alan highlighted, decision-making is much easier and you can effectively communicate the risks posed by climate change to your board, the business and your customers. As Alan says, "insurers can push their customers to make more informed, careful decisions by translating the threat of climate change into a monetary value".
Alan Godfrey's blog posts were published on 25 June and 2 July 2018. For more information about our UK Climate Change Flood Model, read our executive briefing.
