Taking its own approach to the issues was modeling vendor Risk Management Solutions Inc., whose Celine Herweijer, a principal scientists, future climate, unveiled a toolbox of solutions to help insurers and risk managers get a handle on the possible impact of climate change on their catastrophe exposure.
Such tools couple loss-estimation models with the work of climate modelers to create such a recipe: assume x feet of sea level rise and y percentage of increased hurricane activity by 2050, then run a hurricane model to see how that will affect losses to your coastal properties from storm surge and wind.
Typically, storm surge losses were affected the most by rising sea waters in these simulations.
"It's important to do this," Herweijer said, despite the uncertainty involved in forecasting climate change decades ahead.
A key reason: these tools allow uses to also factor in several types of adaptations to properties and measure their positive effect on possible losses. The takeaway, said Herweijer, was the realization that adaptation to climate change will determine pricing and availability of insurance coverage in the future.
"Risk doesn't have to rise hand-in-hand with rising hazards," she said.
So instead of keeping focused on the usual five-year underwriting window of the future, she argued, insurers should take the strategic view of the decades ahead and work toward being relevant in a climate-change world.
Present at the conference, which itself was held in the very comfortable climate of Florida in February, were modelers who didn't exhort insurers with solutions as much as call into question any practical use to long-term climate simulations.
Tom Larsen, senior vice president of product management at Oakland, Calif., modeler Eqecat Inc., wondered aloud, "People start losing traction when you start talking about their great-grandkids."
Touching upon the issue of whether climate change is making hurricane more powerful and/or more frequent, Larsen said EQE uses data from NOAA on the so-called AMO to explain the ups and downs of sea surface temperatures. The AMO is a 50- to 60-year cycle, identified in past records in the Atlantic Ocean, that is "transparent," said Larsen--compared with theories on how climate change might be warming the oceans year after year and thus churning out more hurricanes, which is still under heated scientific debate. For EQE, it seems the AMO is a way to grapple with shorter-term uncertainty, of more tactical value to underwriters, than wrestle with the ifs of 2050.
A similar message permeated from the AIR Worldwide Corp. crew.
Peter Dailey, director of atmospheric science for the Boston-based vendor better known as AIR, talked about how more questions existed than answers at the moment when it comes to long-range climate forecasting. He expressed concerns with basing today's business decisions on uncertain long-range climate forecasts.
"The idea of making huge financial decisions based on long-range climate simulation is very different than managing current catastrophe risk using the kind of models we build at AIR," he told Risk & Insurance®.
In Dailey's view, climate does not shift dramatically on short time scales--with Herweijer, on the other hand, suggesting that climate change will be noticeable in as soon as 10 years.
Dailey said, "You cannot on one hand forecast that the climate will shift dramatically and on the other hand assume that those shifts will occur as they have in the past. This really requires more research."
"What underlies much of the confusion around these issues is a lack of understanding of the magnitude of the uncertainty as illustrated by the range of results provided by various climate models," said Dailey. "Understanding just what is uncertain yields an improved understanding for what assumptions always apply and what assumptions may not apply in a changing climate."
While on its face, AIR may appear hesitant to embrace the climate change views of others, it is diving into the scientific debate with its own original peer-reviewed research.
For instance, AIR's recent research addressed the popular assumption that increased hurricane activity in the Atlantic from global warming will translate into increased landfalls along the North American coast.
"The validity of this assumption was a key question for our clients," Dailey said.
Using publicly available Atlantic hurricane landfall and atmospheric data, AIR found that a hurricane's landfall probability is determined in part by where the hurricane originally forms.
Based on the research, said Dailey, "the analysis revealed that in a warming world, where the Atlantic Ocean experiences higher-than-average surface temperatures, certain parts of the United States coastline may be unaffected, while other regions like the Carolinas do show evidence of increased risk."
One plausible explanation is that increasing ocean temperatures would allow more tropical cyclones to form farther to the north than most do today, and historically these storms tend to make landfall between Florida and Cape Hatteras, N.C. Because the Carolina coastline juts out into the Atlantic, and is on the northern fringe of this susceptible landfall region, it could catch more storms forming in these warmer waters.
Dailey said that AIR also plans to explore how climate change influences other factors that enter into the equation--namely, wind shear conditions which tend to inhibit hurricanes. Some of the latest academic research has suggested global warming could increase water temperatures in the Pacific, leading to stronger or more frequent El Niño events, which would in turn could lead to increased wind shear in the Atlantic--and wind shear (a measurement of the difference in wind speed as you move up in the atmosphere) tends to break down tropical cyclones before they can get dangerous for land lubbers.
Got all those assumptions? It appears the modelers are trying.
MATTHEW BRODSKY is Web editor/senior editor of Risk & Insurance®.
April 1, 2008
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