Insurance Companies Coming to Terms with Climate Risks

An actuary is a business professional who analyzes the financial consequences of risk. Actuaries use mathematics, statistics, and financial theory to study uncertain future events, especially those of concern to insurance and pension programs.

Insurance companies make money by hiring the smartest bean counters on the planet to slice and dice statistical measures of risk. The American Academy of Actuaries has now produced a statement on the risks of Climate Change.

American Academy of Actuaries:

• Global mean surface temperatures have increased by three-quarters of a degree Celsius over the last 100 years.

• Seven of the 10 warmest years on record for America’s contiguous 48 states have occurred since 1990.

•The fraction of global land area experiencing extremely hot summertime temperatures has increased ten-fold over the past 50 years.Over the past three decades, the number of weather-related loss events in North America grew by a factor of five, according to a 2012 report
by Munich Re.This compares with a four-fold increase in Asia, 2.5 in Africa, 2 in Europe, and 1.5 in South America. North America faces every type of hazardous weather risk – hurricanes, tornadoes, drought, flood, wildfire, and storms, according to the report. One reason is that no east-west mountain range exists in North America to prevent southern warm air from colliding with cold Canadian weather fronts.As weather-related damages increase, these costs fall on insurers, businesses, and consumers. The world’s five largest natural catastrophes ranked by insured losses in 2012 all occurred in the United States, including Hurricane Sandy, drought in the West, and various storms and tornadoes, according to Munich Re. The National Oceanic and Atmospheric Administration (NOAA) recorded 80 U.S. weather/climate events that each had losses exceeding $1 billion between 2004 and 2013, compared with only 46 events in the previous decade.

Here is NOAA’s breakdown of weather-related events:• The western U.S. has experienced hotter and drier temperatures over the past decade, which has led to more wildfires and crop failures. There were 14 drought and wildfire events where each loss exceeded $1 billion in 2004-2013, according to NOAA data, compared with 10 similar events between 1994 and 2003.• Damage from winter storms and freezes, which generally hit the eastern half of the United States, fell over the past decade. NOAA reported three winter storm and freeze events where losses exceeded $1 bil lion between 2004 and 2013, compared with seven similar events in 1994-2003

• Water damage has surged over the past 10 years, in large part caused by increasedhurricane activity. NOAA reported 23 flood and hurricane events with losses exceeding $1 billion between 2004 and 2013, compared
with 16 from 1994-2003.

• The biggest increase in damage from weather events over the past decade came from severe storms, which NOAA classifies as tornadoes, hail storms, severe thunder-storms, derechos, and flash floods. There were 40 such events with losses exceeding $1 billion from 2004-2013, compared with 13 between 1994 and 2003.