Insurers across the globe use catastrophe modelling to help predict and price natural disaster losses but a new report has found models may fall short when it comes to predicting the impact of climate change.
Last month, Lloyd’s released a report examining how catastrophe models are keeping pace with effects of climate change, which is thought to already be increasing the severity of extreme weather events.
According to the report, the frequency of heat waves, rainstorms and tropical cyclones have all increased across many regions and the trend is predicted to continue.
For instance, recent sea-level rises are modelled to have increased the storm surge losses caused by Superstorm Sandy in New York by 30%.
Already, there has been an increase in the frequency of heat waves, heavy rainstorms and tropical cyclones across large swathes of the globe since the 1970s.
The report says although many catastrophe models implicitly factor some degree of climate change into their predictions by incorporating trend data, this could fall short of accurately modelling worsening weather.
“Many of the effects will become apparent over the coming decades and anticipating them will require forward projections, not solely historical data,” it states.
Lloyd’s Exposure Management and Reinsurance Team Leader Trevor Maynard says: “Climate change is expected to continue to happen even if strong action is taken to cut greenhouse gases, however, meaning that policymakers and planners will have to make use of climate model projections, but take account of uncertainty in them.”
“Catastrophe models calculate financial impacts from potential events in the next year or so. Planners need to consider how the risk will change over the term of their projects.”
View the full report here.