Climate Change - John Alarcon

X. International Istanbul
Insurance Conference
Climate Change
October 4th 2018
Willis Re
© 2016 Willis Towers Watson. All rights reserved.

AGENDA
2© 2016 Willis Towers Watson. All rights reserved.
• Generalities
• Future effects
• (Re)insurance and Climate Change
• Catastrophe Modelling of Climate Change

Very brief definitions
The correct definition of three key terms: Weather, Climate Change and Global Warming. These are
often used interchangeably though it is important to understand the main differences. An important
element for this differentiation is time-frames and spatial coverage
Time frame: Minutes to Days
Spatial Coverage: Local
It is basically related to Atmospheric conditions
such as rain, clouds, floods, etc.
“If you do not like the weather in (New) England,
just wait a few minutes” - Mark Twain
Definitions from NASA “Global Climate Change”
Weather
Climate Change
Global Warming
Time frame: Long term (seasons/years/decades)
Spatial Coverage: Regional / Global
It is related to the average of temperature,
humidity and rainfall
Time frame: Since early 20th Century
(particularly the 70’s)
Spatial Coverage: Global
It is related to the increase in temperature
across the Earth due to fossil fuel emissions.
0.8 oC
Temperature
Relative to the
mid 20th Century
baseline (1951-
1980)

Is Climate Change Normal?
Yes, it is Normal! Paleoclimatology studies show that the planet has changed its
temperatures constantly along geological time. Evidence suggests that in the past
the Earth’s temperature has been much higher and lower than currently. The
average global temperature today is 15 OC.
Ice Ages
Lasted from about 2.4 million years ago until 11,500 years
ago. The climate changed from very cold to very warm
periods.
The last Glacial period occurred between 115,000 to 11,700
years ago and currently we are in an Interglacial period
Average
10 oC
lower
Temperature

Are there more recent examples?
Yes, it is Normal! Paleoclimatology studies show that the planet has changed its
temperatures constantly along geological time. Evidence suggests that in the past
the Earth’s temperature has been much higher and lower than currently. The
average global temperature today is 15 OC.
Medieval Warm Period in Europe
(circa 950/1000 to 1300)
• Mainly in Mid-, North- and West- Europe
• Mean temperature increase estimated by 0.5 to 1 °C
• At the same time the Maya culture disappeared due
to bad weather/climate conditions
• Warm period led to population increase in
Europe/new settlements.
• Greenland is populated
• Wine agriculture in Oslo-Fjords
• Fig and olive trees in South Germany
Important difference to climate change nowadays: it
was not global
Increase of
0.5 -1.0 oC
Temperature

The Little Ice Age
Little Ice Age
(circa 1315 to 1850)
• Mean temperature lower by 0.8 °C, in some regions
by 2-3°C than the previous warm period
• Seemed to be a more generalised phenomenon,
however not exactly at the same time (North
America later than Europe).
• Mainly in Northern hemisphere, southern
hemisphere no clear evidence
• Main drivers: sun spot cycle
• Sun spot cycle
• Volcanic eruptions (1815/1816)
• First paintings of snow and ice landscapes
Once more, not a Global effect
0.8 oC lower
than
previous
warm period
Temperature
Frederk M. Kruseman – 1850 (Low Countries)
Pietre Bruegel – 1565 (Belgium) Jan Abrahamsz – 1658 (Netherlands) Giovanni P. Panini – 1730 (Rome) Francisco Goya – 1787 (Spain)
George
Morland –
1792
England

Is Climate Change Normal?
Yes, it is Normal! But what is not Normal is Global Warming!
When climate change has increased temperatures significantly
in the past two million years, it has taken the planet about
5,000 years to warm 5 oC degrees.
From Mann et al., 2008
Climate Change models estimate that the Earth will be 2 to 6
oC degrees warmer within the next 50 to 100 years.
This rate of change is extremely unusual and has been
strongly linked to human intervention, mainly due to due to
fossil fuel emissions.

What Models Tell About the Future
The Intergovernmental Panel on Climate Change - IPCC 2014
The IPCC 2014 report
provides a scientific
review of the state of
knowledge about
Climate Change.
The clear consensus
is that Global warming
exists and is driven by
human activity
RCP stands for Representative Concentration Pathways – These
are Greenhouse gas trajectories adopted, and describe four
possible climate futures pending on how much green house
gases are emitted in the coming years.
Each pathway is named making reference to the Radiative
forcing or Climate forcing values in the year 2100 (i.e. the
difference between the sunlight energy absorbed by the Earth
and the energy radiated back to space), relative to pre-industrial
values. For instance, RCP 4.5 means that the Radiative force of
the earth is +4.5 Watts/m2 in 2100 compared to the 1750s.
The four scenarios are RCP2.6, RCP4.5, RCP6.0 and RCP8.5

What Models Tell About the Future (2)
The Intergovernmental Panel on Climate Change - IPCC 2014
The changes in the average
global temperature in the
2081-2100 time interval are
likely to be between 0.3 oC
and 0.7 oC higher than in the
1986-2005 time period.
With respect to the 1850 to
1900 period, the surface
temperature in the 2081-
2100 period is likely to be
between 1.5 oC and 2.0 oC
higher.
Changes in the precipitation
(water cycle) will not be
uniform. Extreme rainfall
events are likely to become
more intense in the mid
latitudes

Climate Change and (Re)Insurance
The key question in this forum is: Given the complexities of the processes involved in Climate
Change and Global Warming , can the Insurance Industry have any impact (for good) on it?
Car
Insurance
Drivers Age
Accident
history
Car usage
Parking
area
Differential Pricing
Geospatial
advances, and
topographic data
have provided the
option to be more
accurate for Price
discrimination
matters in Property
insurance
This then would
incentivise the
costumers decisions
on where to buy a
property
With more detailed data and information,
Insurers could offered reduced premiums
for costumers that invest on risk mitigation

Climate Change and (Re)Insurance - 2
The key question in this forum is: Given the complexities of the processes involved in Climate
Change and Global Warming , can the Insurance Industry have any impact (for good) on it?
ILS (Cat Bonds)
And Governments
A Global Reinsurer proposed
a Cat Bond where rebates or
premiums are partially
returned to
Municipalities/Governments
that invest in Risk mitigation
projects (e.g. Riverine Flood
Defences implementation,
Sewer system upgrades, Sea
Wall defences, etc)
With more detailed data and information,
Insurers could offered reduced premiums
for costumers that invest on risk mitigation
Wind Turbine Insurance
protecting energy
production
Not only governments
incentivise cleaner
energies for cars via
tax relief, but
Insurance companies
also do so via
differential premiums

Is Climate Change Modelled in Catastrophe Models?
Model 1
Catalogue bases on years
with Warm Sea Surface
temperature
Yes and No
North Atlantic Basin
Model 2
Projection of hurricane
activity: 5yr view (2014-
2018)
Europe Windstorm
Model 1
Alternative view - Catalogue developed using
recording from a different time window
Custom Studies
Association of British Insurers asked the
Met Office and AIR to assess the financial
impacts of climate change in UK.
1-in-100-year event insured flood losses
could rise by 30% to £5.4 billion

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Climate Change - John Alarcon

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