Managing the Financial Risks From Flooding in a Future Climate

Residential insured flood losses in the UK could rise by 25-30% as a result of climate change. Higher financial losses resulting from climate change have been shown in Canada. Unsurprisingly, those in the financial service sector, including insurance and reinsurance companies, are beginning to ask how climate change will affect their businesses. But for the insurer whose predominant interest is understanding their risks over the forthcoming year, should they really be worried about the situation decades from now? While climate change is widely considered a long-term problem, there is strong evidence that the impacts are materialising today. As insurers begin to consider climate impacts in their short- and long-term views of flood risk, what information and tools are available to help them make better decisions?

The climate science community and the financial services sector operate, broadly speaking, independently of each other; both groups have different requirements, goals and areas of expertise. For the insurance industry, for example, to adequately understand and address climate change, a multi-disciplinary approach is required; one that translates the complex outputs from climate models into functional tools that meet their specific requirements. These tools might be used to inform pricing adjustments and changes to their risk selection (i.e. avoiding taking on new risks in areas projected to be more sensitive to climate change). Only a few collaborations that connect all the relevant disciplines and limited tools are available to meet the insurers climate change needs.

We present outputs from several projects that combine data and expertise from climate science, hydrology and hydraulic modelling, statistics and catastrophe modelling. Examples, from industry-academic collaborations in the US, UK and Canada, include: (1) recently published work showing that anthropogenic emissions are likely to have increased the chance of occurrence of the Winter 2013/14 floods in Britain and exploring the societal impact using an industry-standard model; (2) proof-of-concept flood inundation studies aimed at raising awareness about the potential economic impacts under a future climate and; (3) the development of an operational, national-scale climate change flood model designed for the re/insurance industry.