According to the broker’s global head of catastrophe management, the concept of secondary perils applies to extreme weather disasters such as the wildfires, droughts and floods seen in recent months on both sides of the Atlantic.
Adding to the challenge of modelling catastrophe risks is that climate change is making much of the historical data behind existing models less relevant to the risks of tomorrow, he told The Insurer TV as part of its #ReinsuranceMonth coverage.
“The challenge is in the lack of investment in the last decade around secondary peril modelling,” said Dick.
“Over the last several years in the US, the losses paid by the industry for secondary perils, led by severe convective storms, have actually outpaced those caused by hurricanes,” he said.
“Here in Europe, for every dollar paid for windstorm or for earthquake, the industry over the last 20 years has paid out more than $2.50 for secondary perils,” Dick added.
“I think the big challenge and opportunity is how we are going to better model secondary perils, and to help insurers understand the risk selection and underwriting when it comes to secondary perils.”
Climate change will affect weather patterns in ways that make the traditional reliance on existing historical data increasingly irrelevant, he warned.
“We have to recognise that events are going to look different in the future,” said Dick.
“Using an event set crafted for 2022 does not portend to what it will look like in 2050 or 2070, because the climate is going to create events that look very different,” he said.
“I think the view for the industry has to be how are we going to use climate models and build simulated events that are going to best represent what we expect to see in the future, not take today’s events and try to move them forward,” he added.
Losses from weather-related events have been widely reported as a growing headwind for the (re)insurance industry. According to a report from Aon, in 2021 flooding was the peril that produced the largest amount of global economic losses, followed by tropical cyclones.
Engaging with academia
In response, Aon has upped its engagement with the scientific community, Dick emphasised, building stronger links between (re)insurance and academia. This includes encouraging more graduates and postgraduates to join the sector in future, he stressed.
“We’re extending our relationships with university partners, getting involved in some of their curriculum decisions. We’re working as advisors to various schools of geoscience, or schools of earth science, and we’re educating them about the opportunity in the insurance industry. So we’re not stopping at how we build models, but showing them there’s a career path within the industry,” he said.
Dick flagged links forged with the Intergovernmental Panel on Climate Change (IPCC) in particular.
“That’s something we’ve been doing at Aon … it’s going out to the universities that are working on the IPCC reports, and we’re asking them to work with us to build out these future views of risk,” he said.
In the US and UK, these efforts have been particularly fruitful, he suggested, forging links with the researchers behind the IPCC’s findings, who are in turn keen to help Aon’s own research efforts.
“We have a lot in the works right now,” he added.
However in other regions, particularly Africa, Central and South America, Aon is still searching for academic partners to boost its research and risk modelling efforts, he suggested.
“We’re working hard and working with our Aon network to try to find those right university partners to extend this climate change research,” he said.
Watch the full interview with Aon’s catastrophe risk leader Dan Dick, filmed from The Insurer TV’s pop-up studio suite overlooking Monte Carlo’s famous Casino Square. Click for more on:
- The challenges of secondary perils
- Models to move with climate change
- Forging links with academics