“As climate change and socio-economic factors lead to ever more damaging catastrophe events, we need to get better at turning science and data into actionable insights,” suggests Paul Shedden, Global Head of Analytics at Aon’s Reinsurance Solutions.
Shedden states that extreme weather stats were broken again in 2022, as the year landed as the sixth-warmest on record, with three global drought events among the ten costliest disasters.
“These events are a reminder of the powerful impact of climate change on communities around the globe as well as affecting the behaviour of certain natural perils at a regional level,” Shedden explains.
He notes that climate change is not the only factor that can affect the frequency and severity of natural catastrophe losses, as loss data suggests that socioeconomic elements are the primary driver of an increasing number of damaging natural catastrophe events.
Shedden continued, “The world’s population has increased by 30% since 2000, while global GDP rose by a staggering 80% (in constant prices).
“Last year’s Canadian derecho on May 21, is a good example. The storm tracked an estimated 1,000 km (620 mi) through highly populated regions of Southern Canada – including Toronto, Ottawa, Montreal, and Québec – resulting in one of the costliest convective storm outbreaks in the country’s history.”
He adds that current scientific understanding does not provide a conclusive answer to how this peril is affected by climate change, however, it’s clear that geographic location and socio-economic aspects are crucially important loss factors.
Shedden went on, “Increasing volatility in natural catastrophes is undoubtedly a major challenge for the insurance industry, but we can rise to meet it.
“Thirty years ago, insurers had little more than circles drawn on maps to go by when calculating the potential impact of a major hurricane landfall or earthquake.
“Today, we have some amazing tools at our disposal, and the sophistication of modelling and exposure management has increased exponentially, requiring ever more expertise to interpret.”
Shedden says that since the release of Aon’s first Catastrophe Insight Report in 2018, Aon’s Catastrophe Insight team has continually enhanced its historical data set, updating existing event records and filling gaps in data.
Further, Impact Forecasting is also collaborating with a global network of academic climate experts to bring emerging climate research directly into the insurance industry and create actionable insights, he says.
Shedden concludes, “Our industry must prepare for the risks of tomorrow, equipped with tools to measure both the near- and long-term risks.
“As an industry, we need to use climate science and analytics to really get under the skin of extreme weather events, and understand the drivers of loss, and the potential future implications of climate change.
“This is the next big challenge for analytics. We need to continually push the boundaries of climate science and modelling, but in doing so, we must create actionable insights, and deploy these in underwriting, reinsurance and portfolio management, as well as to drive enhanced risk mitigation and resilience.”
