Aon plc, the global professional services firm, has revealed how its academic collaborations are progressing climate science, enhancing catastrophe model development and helping organizations to fulfil Environmental, Social and Governance mandates.
Aon’s work with Columbia University has revealed that under selected scenarios, U.S. hurricane losses would increase by at least 10% over 20 years as a result of changes in climatic activity.
Although, this estimate does not account for increases in exposures as a result of non-climatic factors such as new development and inflationary momentum. Aon notes that these findings are based on evolving climate research and could be subject to revision as new insights are obtained.
The 14 global academic collaborations are bringing emerging climate research directly to the insurance industry, to enhance risk understanding and create actionable insights to build physical resilience, transition to net zero and identify growth opportunities. Output from the collaborations can also benefit other corporations with climate risk exposures, particularly when addressing increasing regulatory mandates.
Liz Henderson, leader of Aon’s Climate Risk Advisory team, said, “Through collaborations with academic institutions, Aon is enhancing its understanding of climate science and using this knowledge to help our clients and the wider industry navigate climate change, become more resilient, seize new opportunities and make better risk decisions. Furthermore, we are assisting clients to meet their ESG mandates through the development of effective and informed internal and external stakeholder communications strategies, including robust responses to regulatory disclosure requirements.”
The peril-specific academic insights being built into the models include hurricanes and wildfires in the US, along with European floods and windstorms.
Columbia University has explored different ways to quantify moisture in the air and this has a notable impact on how the frequency of hurricanes could change in the future. Running several Shared Socioeconomic Pathways scenarios with different climate policy assumptions to assess the impact of varying levels of future greenhouse gases and aerosols. The team found that higher aerosol emissions led to fewer tropical cyclones. Such data will be incorporated into Aon’s tropical cyclone models to better assess future financial losses. U.S. hurricanes have the same uncertainty as the frequency of tropical cyclones.
U.S. wildfires have increased risk due to hotter climate and human-triggered events, recent historic U.S. drought conditions are consistent with the output of climate models, which project a hotter, drier western hemisphere due to increased greenhouse gases. Peripheral development in at-risk areas coupled with these drier conditions is expected to significantly increase fire risk in many areas. Aon’s continuing collaboration with the University of California, Merced and the University of California, Los Angeles examines how these anticipated climatic changes will affect the burned area and associated insured loss in wildfire events.
Atmospheric circulation patterns play a key role in driving extreme weather events, such as floods and windstorms, but Aon’s collaboration with the Karlsruhe Institute of Technology (KIT) found that extreme hydrological events also 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. Such terrain effects are now being incorporated into Impact Forecasting catastrophe models to help insurers better forecast potential losses.
Impact Forecasting will rebuild its catastrophe modelling suite to incorporate climate considerations, rather than making frequency adjustments to existing loss scenarios. These models will enable forward-looking hazard data for different climate scenarios and inform climate advisory frameworks to help insurers make better business decisions. These tools are being expanded to better manage physical risk for financial institutions, governments and energy sectors.
