Bringing in an academic perspective will be critical for the insurance sector as it reshapes its modelling tools to better reflect the risks and challenges presented by climate change, according to Liz Henderson, head of climate change analytics for Aon’s Reinsurance Solutions.
Speaking to The Insurer ahead of COP26, Henderson said the broker was set to extend its academic partnerships in 2022 as it increasingly brings an academic perspective to the modelling tools it offers to clients.
Aon has previously announced a collaboration with Columbia University to develop climate risk scenarios for its tropical cyclone models.
“This project is building a new event set from the ground up,” she said. “The type of events we will see under future climate scenarios will carry more precipitation, intensify rapidly right before landfall, and have the propensity to maintain strength and drive increased rainfall over land, as we saw with Hurricane Harvey and Hurricane Ida – these events aren’t well captured by existing catalogues.
“By partnering with Columbia University, we will create a completely new event set. We will be looking to replicate that with other academic institutions during 2022 for perils such as US severe storm, wildfire, Japan typhoon, European flood and European windstorm, so we can create a fully climate-conditioned event catalogue.”
Henderson said clients are looking for more data than is currently captured by models. A peril such as chronic heat, for example, may not impact physical structures but can have a significant impact on an insurer’s customer base.
Clients also increasingly need to assess the carbon footprint of both their underwriting and investment portfolios – an area where there remains a lack of data and consistent evaluation frameworks.
“We hope that following COP26 there will be increased access to that type of data,” she said.
While she acknowledges progress towards carbon reduction commitments agreed as part of the Paris Agreement has been “disappointing”, Henderson said she remains optimistic about the COP26 event.
“I’m optimistic because the nature of the conversations have changed. More companies want to be leaders through a transition than 12 months ago, when they were more reactive.
“I’m optimistic that there is more focus and energy within the industry, and with that has come more hiring and more talent, and I am optimistic if we can maintain that momentum.”
For companies looking to develop an ESG strategy, Henderson said it was important they first think about what it means for their organisation.
“Often when people are thinking about creating an ESG report they jump straight towards looking to assess their metrics and targets as they attempt to quantify the risk.
“The most important part of the process is to set up some governance and to do deep thinking around what climate change means for their organisation and what role they want to play in the transition.
“If you can define that, then all of the metrics and targets fall into line and you can develop a comprehensive strategy that allows you to focus not just on the risk but on the opportunity.
“That type of discussion is really needed by the industry – people should examine what they need to do if they want to play a leadership role.
“In order to meet the ambitious goals of decarbonisation, it will require significant investment in renewable energies, technology and nature-based solutions.
“All of these will need investment money and bring with them their own investment volatility. For insurance to play a role in helping to drive decarbonisation, we need to be there to support that volatility and take their risk, playing our part in helping fund the transition.”