How climate change is impacting hurricanes
Climate change is no longer an uncommon, or unspoken about, subject. It is also no longer disputed, at the scientific level, that the world’s temperatures are increasing due to climate change and that accommodations need to be made in order to live with—and possibly reverse—it.
It is a subject that the insurance industry is grappling with. One organisation that has been conducting recent research in this area is Boston, Massachusetts-based catastrophe modeller Karen Clark & Company (KCC).
The company’s head and namesake spoke to Intelligent Insurer to talk about why KCC had put together this research.
KCC’s work is taking the form of a series of whitepapers that will look at the intersection of catastrophe models and climate risks. The first, on hurricanes, is available here.
“Catastrophe models have played a critical role in quantifying risk and enhancing resilience, with respect to natural disasters and extreme events. That role is becoming more important as extreme events are becoming more frequent around the world,” Clark said.
There are a number of reasons for the reports to be produced, mostly around the ‘E’ part of environmental, social, and corporate governance (ESG), as well as the impacts of a shifting climate on the insurance industry.
“It is very complicated to estimate any clear trend in frequency.” Karen Clark, KCC
KCC’s initial whitepaper, “Climate Change Impacts on Hurricanes and Insured Wind Losses”, looks at how the intensity of tropical cyclones has intensified over time.
The most surprising element of the whitepaper is that it is the intensity of hurricanes that has increased, not their number.
The paper reads: “In recent years, a consensus has formed within the scientific community that the warming climate has led to increased tropical cyclone intensity. While the total number of tropical cyclones has not changed significantly, the global proportion of major hurricanes—tropical cyclones that register as category 3 to 5 intensity on the Saffir-Simpson scale—has increased over the past several decades.
“This trend is projected to continue into the future with the magnitude of the increase driven by future increases in global temperatures.”
It is a trend that, in itself, has not been covered by the Intergovernmental Panel on Climate Change’s (IPCC) work, said Clark. “Scientists have a strong confidence that intensity is increasing, but it’s not something that the IPCC quantifies.
“Its report doesn’t say how much intensity is increasing, so that’s left to the catastrophe modelling companies. We have to quantify it because, ultimately, we have to give information to insurers on what it means for their insured losses.”
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New data
That has changed due to new data, from which KCC has made its analysis. “National Centers for Environmental Information scientists have a new global dataset called HURSAT (hurricane satellite). They’ve been able to estimate the intensity of hurricanes in all ocean basins with a consistent methodology. That provides a very robust dataset for quantifying any trends in hurricane frequency or intensity.
“What scientists have consistently found is that the proportion of major hurricanes, that is, category 3, 4 and 5 on the Saffir-Simpson scale, is increasing relative to the proportion of the weaker storms.”
There is a scientific reason why the number of hurricanes has remained steady, while their intensity has increased.
Clark explained: “Rising sea surface temperatures increase the potential for hurricane formation, but they also increase atmospheric instability and vertical wind shear. The latter is actually bad for hurricanes—it tears them off.”
Frequency is another issue. “There are so many feedback mechanisms in the atmosphere that it is very complicated to estimate any clear trend in frequency. Some models suggest up. Some suggest going down. But the consensus is that there is no change.”
What about the insurance industry? “Climate change is altering the shape of the last distribution. The main output of a catastrophe model is called the exceedance probability (EP) curve. That is what insurers use for all their risk management decisions. The EP curve shows the probabilities of exceeding losses of different magnitudes,” Clark explained.
“Re/insurers like to think in terms of a term period. The EP curve is letting you know for the industry, as a whole and for individual portfolios, what the one-in-five, one-in-10, and one-in-20 year losses are.
“The interesting thing about the climate change scenarios is that in all the scenarios, the losses are increasing faster on the lower return periods. The one-in-five and one-in-10 losses are increasing faster. That’s significant,” she concluded.
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