RMS Expands Climate Change Model Suite to Include U.S Wildfire, U.S. Flood, Japan Typhoon Perils, and Updates North Atlantic Hurricane
Joss MatthewmanMarch 10, 2022
Just under a year ago, RMS® announced the first RMS Climate Change Models for North Atlantic hurricane, Europe flood, and Europe windstorm. These groundbreaking climate solutions represented the first set of models to extend the industry-standard, fully probabilistic approach used in catastrophe modeling to quantify climate change risk.
Since we launched our first Climate Change Models, I have seen a significant shift in how the market is responding to climate change risk. From the chief risk officer to the head of regulatory reporting, climate change is moving up their agendas. And not just for insurers but for all businesses.
For example, we have partnered with several clients in their response to the Bank of England Climate Biennial Exploratory Scenario (CBES), where they leveraged RMS models and consulting teams to assess physical risk such as North Atlantic hurricane. We anticipate that these types of regulations will continue to increase.
Preparations are now underway as regulators such as the European Insurance and Occupational Pensions Authority (EIOPA) plan to include climate change risk analysis in their guidelines on Own Risk Solvency Assessment (ORSA), along with new climate scenarios from the Network for Greening the Financial System (NGFS).
Insurers are also making significant commitments toward net zero. With the first United Nations Climate Change Conference (COP) in two years, November 2021’s COP26 in Glasgow saw the creation of the Glasgow Financial Alliance for Net Zero (GFANZ), bringing together three net-zero alliances including commitments from 21 of the world’s leading insurers and reinsurers within the Net-Zero Insurance Alliance (NZIA).
All businesses are facing increasing environmental, social, and governance (ESG) reporting requirements as legislators around the globe adopt new measures. Task Force on Climate-Related Financial Disclosures (TCFD) mandatory reporting is coming into force in the U.K. for around 1,600 companies in 2022, and into New Zealand in 2023. Clearly, the momentum behind net zero is building, and the need to understand and manage climate change risk has grown substantially.
Differentiate Your Business With Comprehensive Climate Change Analytics
Many of our clients understand the importance of operationalizing climate change analytics into their regulatory, underwriting, and portfolio management workflows. To support the next step in clients’ climate change journeys, RMS is committed to expanding the breadth of perils and delivering more advanced capabilities to our existing solutions.
I am delighted to announce three new models in the RMS Climate Change Model suite, bringing the total to six models. With our latest additions, we include models for U.S. inland flood, U.S. wildfire, and Japan typhoon, based on our existing HD Models™.
U.S. inland flood: Captures risk associated with all aspects of precipitation-induced flooding, including tropical-cyclone and non-tropical-cyclone rainfall, with defended and undefended views of risk based on 50,000 simulation years of continuous precipitation
U.S. wildfire: Simulates more than 18 million wildfires over 50,000 years across the contiguous U.S. and Canada in a fully probabilistic model that captures the complete impact of wildfires at high resolution, including the explicit contribution of embers and smoke
Japan typhoon: Uses the latest science and includes recent events to capture risk across typhoon wind, and typhoon inland and coastal flood.
The existing RMS® North Atlantic Hurricane Climate Change Model will also be enhanced, using the integrated storm surge modules within the RMS North Atlantic Hurricane Models to provide sea level rise projections for the U.S. These projections include the impact of vertical land movement, such as areas of land sinking in the Gulf region.
To learn more about these new releases, you can register for our launch webinar entitled "Building a More Consistent and Correlated View of Climate Change Risk" on March 30.
All RMS U.S. Climate Change Models are generally available on the RMS Risk Modeler™ application (Figure 1), with the North Atlantic Hurricane Climate Change Model also available on RiskLink® software.
We now offer three models for the U.S. across the major insured perils, two for Europe, and a first model for Japan. All three of the new Climate Change Models leverage our high-definition model framework to provide a robust baseline that is then conditioned using projections of future climate change.
Figure 1: Screenshot from RMS Risk Modeler application showing analysis settings to produce present day and future climate scenario analyses
For all six models, customers will be able to select from four Representative Concentration Pathways (RCPs) that reflect different greenhouse gas concentration trajectories. Users are also able to easily switch time horizons ranging from 2020 to 2100. This provides a total of 68 RCP and time horizon views for each model. All three of the new models will be available on the cloud-native RMS Risk Modeler application for seamless integration into existing workflows.
Embedding Climate Change Risk
My prediction for this year is that we will see physical climate change risk become much more embedded within a (re)insurer’s day-to-day workflows, almost as a natural extension of risk modeling as we move away from one-off analyses to climate change being part of the routine. This normalization will help (re)insurers become familiar with the changes ahead and start working toward mitigation measures.
For those just starting to examine climate change, a recent report by McKinsey and Company on the threat and opportunity of climate change for property and casualty (P&C) insurers spells out the current situation for insurers with great clarity. It states that no one in the industry can ignore the effects of climate change. As my colleague Robert Muir-Wood, RMS chief research officer, recently outlined, a climate change signature was evident in a number of the 2021 catastrophes.
The McKinsey report adds that some insurers may feel insulated from the escalating effects of climate change so far. This could lead to falling behind industry leaders who have identified the need to prepare for these changes before they occur. But whatever your starting point, the requirement to get a sound understanding of your climate change risk now, and looking ahead to the future, is essential before your business makes any decisions.
Senior Director, Product Management and Strategy, RMS
Joss Matthewman recently rejoined RMS as Senior Director of Product Management and Strategy, leading on RMS’s climate change activities. Prior to this, Joss was Head of Catastrophe Exposure Management at Hiscox, responsible for natural catastrophe, war, terror, and political violence exposure management and reporting across the group.
Before joining Hiscox, Joss spent seven years in model development at RMS, where he worked on the RMS North Atlantic Hurricane and Asia Typhoon models, before being appointed Head of Storm Surge Modeling. During this period Joss joined the PRA working group on climate change which he continues to engage with today.
Prior to entering the insurance industry Joss obtained a PhD in Applied Mathematics from UCL and worked as a postdoctoral researcher in climate science at the University of California, Irvine. His published areas of research during this time include stratospheric sudden warmings and the impact of sea-ice on global atmospheric teleconnections.
