Actuaries have a crucial role to play in helping insurers deal with climate change

Insurance News: Climate change is a topic at the forefront of many minds, and actuaries have a crucial role to play by helping the insurance and reinsurance industry better understand related risks and how to price for them, attendees at the CAS Seminar on Reinsurance were told. Douglas Collins, consulting actuary, Towers Perrin, said: “There are important ways actuaries can contribute to the debate about climate change, from helping our employers and our industry understand the risks to quantifying the pricing and risk management implications.”

Collins noted that the Casualty Actuarial Society recently created a new committee to address climate change issues in partnership with the scientific community. “The committee has a broad charge, which includes educating our members and stakeholders, encouraging research that we can use, and assessing the potential risk management implications for the insurance industry,” he said. Collins observed that property/casualty insurers and reinsurers are likely to see effects of climate change across many aspects of their business.

“The first thing that comes to mind for our industry is property claims, particularly for wildfire, flood, and drought. These are likely to be increasing risks under a warming world. “For the reinsurance community probably the biggest concern would be wind, especially hurricanes and tropical storms if climate change causes increased frequency and/or severity,” he said.

On the casualty side of the business, Collins noted there is some litigation activity affecting D&O liability related to proper disclosure and assessment of climate risks, and also potential environmental liability claims against customers in the energy and automobile industries. “This is an area to watch,” he said. Climate change may also impact insurers’ and reinsurers’ expenses because of the costs involved in responding to requests by regulators and rating agencies, as well as the costs of becoming “green” (environmentally responsible) companies.

…“The bottom line is that the insurance and reinsurance community can handle worsening climate because by definition it is a long-term phenomenon. What will challenge us as an industry are aspects of climate change that may not be considered by our models, particularly if we see more frequent severe property events or significant liability claims,” Collins added.