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Modelling the impact of climate change and weather related events Seong Woh Choo Head of R&D and Chief Underwriting Officer 1 1 Introduction • Risk to community and insurers • Climatic cycles/change affecting Australia • Weather Risk projects • Business initiatives 2 Main ideas • Weather Risk Modelling – Adds value – Assists business and community – Can make a difference 3 Insurance Australia Group Limited • Largest General Insurer in Australia and NZ • GWP in excess US$3B • High market share in personal lines 4 IAG’s R&D capability • 80 analysts with diverse expertise • Work with external groups • Used SAS® for over 20 years 5 Risk to community and insurers • Worldwide 1960-1999 – 85% catastrophes were weather related – 75% of economic losses – 87% insured losses • Losses typically caused by: – Tropical cyclones/hurricanes – Winter storms – Hailstorms – Bushfires – Floods 6 H ai Insured Losses in $Millions (2001 prices) ls to Ea rm rt hq Sy ua dn ke ey H N Ap ai ew ri ls C to yc ca l 19 rm lo s 9 ne tle 9 S B yd Tr 19 us n ac 89 hf C e ire yc y M y 1 l H s A on arc 974 ai e ls sh W h1 to W an 99 r e m H dn da 0 ai B 1 e ls r to isb sda 974 H ai rm ane y 1 ls Sy J 98 to rm dn an 3 e Sy y J 198 5 a d C yc ne n 1 y lo O 991 n C e c M t1 Fl y c 9 lo a o H od ne dge 86 ai 1 ls s S A l to yd th 973 ea H a i rm n e 19 y l S s H ai tor yd No 71 n ls v to m S ey 19 rm y dn Nov 84 A ey r 19 B mid F 7 us al eb 6 hf e ire Se 199 pt 2 s H ob 19 ar 96 t1 96 7 Australian Catastrophe losses 1800 1600 1400 1200 1000 800 600 400 200 0 7 8 No: 1 - Sydney Hailstorm 1999 • Australia’s most costly natural disaster • AU$1.7 Billion in Insured Losses • Contributed 25% of IAG’s 15-year total of weather related claims • Approx 50,000 claims • 4 times bigger than previous largest hail event 9 Sydney hailstorm 1999: 8cm hail 10 No:2- Cyclone Tracy: Darwin 1974 65 killed 600 injured 217 km/hr+ winds 11 Climate Cycles: El-Nino/La Nina 12 Climate Cycles 13 Impact of El-Nino in Australia 14 Impact of La-Nina in Australia 15 Weather Cycles 16 Climate Change: Global SPM 1a Temperatures have increased by 0.6°C last century with the 1990’s the warmest decade and 1998 the warmest year since 1861(instrumental record) A further 1.4 – 5.8 °C increase projected by 2100 17 Climate Change: Australia 18 Climate Change • Increases in temperature • more intense rain and wind storms • increase in coastal flooding from storm surge • more intense wet and dry spells • Climate change is expected to increase BOTH the frequency and severity of claims incurred 19 Sensitivities Hazard Cause Of Change In Hazard Resulting Change In Damage/Loss Windstorm Doubling of windspeed 2.2 °C mean temperature increase Four-fold increase in damages Increase of 5-10% in hurricane wind speeds Extreme temperature episodes 1 °C mean temperature increase 300-year temperature events occur every 10 years Floods 25% increase in 30 minute precipitation Flooding return period reduced from 100 years to 17 years Bushfire 1 °C mean summer temperature increase Doubling of CO2 17-28% increase wildfires 143% increase in catastrophic wildfires 20 Impact of Peak Gust Changes 700 % Increase in Damages 600 500 25% increase in peak gust causes 650% increase in building damages 400 300 200 100 0 Under 20 knots 20-40 knots 40-50 knots 50-60 knots IAG Building claims versus peak gust speed showing disproportionate increase in claims cost from small increases in peak gust speed. 21 Data and Analysis Tools Data Extraction Data Management Data Exploitation based Data Daily Extracts SAS® Data Warehouse Data Mining Enterprise Miner® Analysis data DB2 Transaction Daily Extraction, Transformation & Loading (Using Defined Business Rules) Reporting/ Summarisation Base SAS® External Climate Data Statistical and Data Analysis SAS/STAT® SAS/insight® Matlab® Presentation/ Interpretation Base SAS® Enterprise Miner® Mapinfo® Microsoft Excel 22 IAG’s Storm Modelling • Larger or more intense ? • Characteristics and behavior change? • More likely ? 23 Hail/Extreme Events Modelling 24 Could climate change yield a “mega-storm”? Possible Storm with 8cm Hail? 8cm footprint for the April 1999 Storm 25 How could this happen? • Produced by small changes to three key parameters – Wind-shear – Sea surface temperature – Atmospheric stability Related to climate Change? • Sea surface temperature: Yes Wind Shear : Probably Atmospheric stability : Probably 26 Modelling collision frequencies 27 Business response • Recognition climate change is a global phenomena • Support initiatives that reduce greenhouse emissions • Models add value • helps business understand the impact • Research continuing Working with Govt and community - Affordability - Building codes 28 Business response • Example of initiatives • Education program on sustainability • Early warning broadcast on storm • Recycling program with repairers • 2004 target – reduction of • 15% on paper used • 5% in fuel consumption • 5% in kms of air travel 29 Summary Weather risk modelling is feasible Adds significant value Assists business and community You can make a difference 30 Thank you Questions? 31