Download Climate change risk

Climate Change
Impacts: Ignore at
your own risk
Temperature Trend 1955 - 2005
Climate change risk :: Ross Hoffman
Climate change science :: Mark Chandler
Impact of sea level rise on risk :: Ross Hoffman
Climate change risk:
Framing the discussion
[email protected]
Atmospheric and Environmental Research
131 Hartwell Avenue, Lexington, MA 02421
Outline
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Climate change risks
NAIC request
Analysis
Discussion
Action
4 May 2009
www.aer.com/climate
For use of 2009 PCS Miami, Florida CAT Conference attendees
© 2009 Atmospheric and Environmental Research, Inc. (AER)
3
Climate change arenas
Moral
Political
Science
Operations
Investments
Regulatory
Image
 Our grandchildren
 Who pays
 Scenarios
 Impact by weather
 Florida real estate
 Cap + trade
 Green certification
Risks and uncertainty everywhere
4 May 2009
www.aer.com/climate
For use of 2009 PCS Miami, Florida CAT Conference attendees
© 2009 Atmospheric and Environmental Research, Inc. (AER)
4
Climate change business
strategies
• Mitigation strategy – can we fix the problem ?
• Adaptive strategy – modify (adapt) approach in
response to outcomes
– Effective timing, critical threshold triggers
• Opportunistic strategy – take actions that are both
“good for the climate” and justifiable on other grounds
– Can be attributed as responsive to climate change
• Resilient strategy – flexible approach that works well
over expected range of possibilities
– Must be part of analysis for all long term investments
4 May 2009
www.aer.com/climate
For use of 2009 PCS Miami, Florida CAT Conference attendees
© 2009 Atmospheric and Environmental Research, Inc. (AER)
5
Insurance climate
risk disclosure survey
Questions
Comparable CDP Questions
1. Does the company have a plan to assess, reduce or mitigate its emissions in its operations
or organizations? If yes, please summarize.
CDP Performance Question 21
2. Does the company have a climate change policy with respect to risk management and
investment management? If yes, please summarize. If no, how do you account for climate
change in your risk management?
3. Describe your company’s process for identifying climate change-related risks and
assessing the degree that they could affect your business, including financial implications.
CDP Risks and Opportunities
Questions 1-3
4. Summarize the current or anticipated risks that climate change poses to your company.
Explain the ways that these risks could affect your business. Include identification of the
geographical areas affected by these risks.
CDP Risks and Opportunities
Questions 1-3
5. Has the company considered the impact of climate change on its investment portfolio?
Has it altered its investment strategy in response to these considerations? If so, please
summarize steps you have taken.
CDP Risks and Opportunities
Question 3: “Other Risks”
Question 6: “Other Opportunities”
6. Summarize steps the company has taken to encourage policyholders to reduce the losses
caused by climate change-influenced events.
CDP Risks and Opportunities
Questions 4-6
7. Discuss steps, if any, the company has taken to engage key constituencies on the topic of
climate change.
CDP Governance Questions 24, 26,
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8. Describe actions your company is taking to manage the risks climate change poses to
your business including, in general terms, the use of computer modeling.
CDP Risks and Opportunities
Questions 1-3
4 May 2009
www.aer.com/climate
For use of 2009 PCS Miami, Florida CAT Conference attendees
© 2009 Atmospheric and Environmental Research, Inc. (AER)
6
NAIC risk disclosure survey
• Are you green? [1]
• Does your risk management system account for
climate change risk? [2-8] Including specifically
– Your investment portfolio [5]
– Policy holder adaptation [6]
4 May 2009
www.aer.com/climate
For use of 2009 PCS Miami, Florida CAT Conference attendees
© 2009 Atmospheric and Environmental Research, Inc. (AER)
7
Risk management system
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Corporate policy [2]
Identification [3]
Assessment [4]
Outreach and education [7]
Mitigation [8]
Generic,
but applicable to climate risk
4 May 2009
www.aer.com/climate
For use of 2009 PCS Miami, Florida CAT Conference attendees
© 2009 Atmospheric and Environmental Research, Inc. (AER)
8
Analysis
• Once a disciplined risk management system is
directed at climate change, very significant
responses might occur
• Short term regulatory risk predominates
– Imbalance between premiums and risk
– EPA regulation, carbon tax, land use, zoning, etc.
impacts on economic investments
An efficient, calibrated response is
required.
4 May 2009
www.aer.com/climate
For use of 2009 PCS Miami, Florida CAT Conference attendees
© 2009 Atmospheric and Environmental Research, Inc. (AER)
9
Discussion :: Statistics
• Idealized assumptions may not hold in a
warming world
• Non-independence
– The Earth’s atmospheric and ocean weather and climate
systems are strongly coupled and interrelated.
– Complicates risk analysis, but dangerous to assume away
• Non-stationarity
– Caution required in using empirical probabilities in a
changing world, especially for rare events (distribution tails)
– Impact on solvency, rates
4 May 2009
www.aer.com/climate
For use of 2009 PCS Miami, Florida CAT Conference attendees
© 2009 Atmospheric and Environmental Research, Inc. (AER)
10
Discussion :: Statistics
• Uncertainty principle
– Weather noise and atmospheric mode patterns
obscure most climate change on decadal scales
• El Nino, Atlantic Oscillation, etc.
– Regional phenomena are more difficult to predict
– Climate forecast focus is limited: uncertainty
increases as time or space scales decrease
The science issues are critical on their own
and will inform the regulatory discussion
4 May 2009
www.aer.com/climate
For use of 2009 PCS Miami, Florida CAT Conference attendees
© 2009 Atmospheric and Environmental Research, Inc. (AER)
11
Proactive company response
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Education of staff
Engagement with regulators
Public outreach
Policies that promote customers taking
mitigation, adaptation steps
• Risk management, contingency planning
Must be informed by scientific
understanding
4 May 2009
www.aer.com/climate
For use of 2009 PCS Miami, Florida CAT Conference attendees
© 2009 Atmospheric and Environmental Research, Inc. (AER)
12
Climate risk summary discussion
• Insurance Climate Risk Disclosure Survey issued by NAIC
• Risk management systems must now recognize climate risk
– Includes both CAT risk and investment risk
• As climate changes statistics of natural phenomena change
in ways that are neither stationary or independent
• Regulations themselves pose a risk
• It is critical that both the insurance industry and the
regulators become better informed about climate change
science
• Climate change will stress current systems—an optimal
outcome requires a calibrated response
– We must identify what is important and what’s not
– Sensitivity studies and what-if scenarios can bound the problem
4 May 2009
www.aer.com/climate
For use of 2009 PCS Miami, Florida CAT Conference attendees
© 2009 Atmospheric and Environmental Research, Inc. (AER)
13
% increase in risk due to sea
level rise in 2030 in Florida
4 May 2009
www.aer.com/climate
For use of 2009 PCS Miami, Florida CAT Conference attendees
© 2009 Atmospheric and Environmental Research, Inc. (AER)
14