Research collaboration organisation, Lighthill Risk Network Ltd (Lighthill), today announces the publication of a significant and far reaching research report, Best practices for modelling the physical risks of climate change, that addresses the challenges facing regulators and the (re)insurance industry as they look to model the impacts of climate change.
The insurance industry can expect a great wave of ESG and climate change/Net Zero regulation by 2035, which will be expensive in staffing, office space, carbon usage, training and admin. The question of how best to tick the right boxes in risk modelling and pricing, without draining resources away from settling claims or winning new business therefore is a pressing one.
Regulators have different approaches when it comes to guiding (re)insurers to deal with climate change, resulting in a lack of consistency and inadvertently hindering (re)insurers in their efforts to model climate change risks as accurately and completely as possible. Lighthill has identified this conundrum and responded with a report that details best practice methodologies based on industry modelling and reporting standards for the benefit of its members who include Aon, Hiscox, MS Amlin, Guy Carpenter, Liberty Syndicates and Lloyd’s.
Amid strong policy signals from regulators and governments that climate change impact reporting must be factored into the whole financial services industry, to date a myriad of disparate measures have been deployed globally to try to quantify how longer time scale climate change shocks might impact the balance sheets of banks, (re)insurers and investment funds. This report examines what a warmer world implies for (re)insurers, and best practice guidance for how catastrophe models can be used to estimate climate change impacts across different time horizons.
Lighthill Chief Executive Dickie Whitaker said:
“The world of risk is evolving ever faster and, to ensure that appropriate risk modelling is used moving forwards, a collaborative and harmonious approach must be found to eliminate the cost of complying with the requirements of (re)insurers which, if not addressed now, will ultimately spiral and impact the effectiveness of regulated entities. We need more models to be able to reflect changes to the climate already taking effect and we need greater appreciation for which approaches suit which types of questions.
This report could therefore not have come at a better time. With a focus on the learnings from the latest IPCC Assessment Reports, plus Best Practices in Modelling Climate Change, we hope that industry stakeholders will find this open and collaborative paper invaluable in helping them better understand and update their models to factor in the risks of climate change, and how best to model weather hazards over time.”