How can catastrophe modelers help in the fight against climate change?

Lars Sunnell our consultant managing the role
Posting date: 15 September 2023

Over the past decade, the frequency and severity of natural disasters like wildfires have been escalating. Climate change, urbanization, and ecosystem dynamics have had complex interplays, affecting the way the insurance industry calculates risks and sets premiums.


This shift has led to an increased demand for professionals specialized in Catastrophe Risk Modeling within the (re)insurance industry.


The Growing Threat of Wildfires


Once considered a "secondary peril," wildfires are increasingly seen as a "primary peril." According to Swiss Re, the insurance industry incurred $70 billion in losses due to wildfires between 2013 and 2022.


Recent tragedies, such as the wildfires in Hawaii that claimed over 100 lives and the unprecedented wildfire season in Canada, make it clear that the time for underestimating this peril is long past. According to Bloomberg Intelligence, the insurance losses from the recent Hawaiian wildfires alone could be between $2.5 and $4.5 billion.


The Need for Specialized Talent in Catastrophe Risk Modeling


The rise in severity and unpredictability of wildfires underscores the necessity for specialized talent capable of using sophisticated modeling techniques to reassess wildfire risks. These models must now consider factors like:


- Climate Impact: How does climate change contribute to conditions conducive to wildfires?

- Human Factors: How does human activity contribute to the likelihood of wildfires?

- Secondary Effects: What are the implications of wildfires on other risks, like flooding and mudslides?

- Urban Encroachment: How does the increasing proximity of homes to wildfire-prone areas change the risk profile?

- Policy Impact: How do policies on forest management or fire suppression impact the frequency and severity of fires?


Complexity in Modeling


Modeling wildfire risk presents unique challenges compared to other natural disasters. Unlike hurricanes or earthquakes, wildfires are not solely natural events but are often triggered or exacerbated by human activity. Moreover, their spread depends on environmental conditions like wind, temperature, and humidity, which are difficult to predict.


The evolving and highly complex nature of wildfire risks means that insurers require professionals who are not only well-versed in data analytics and statistics but also in climate science, ecology, and urban planning. The ability to integrate these different types of knowledge is key to creating more accurate and actionable risk models.


The Role of Technology and Data Analytics


Technological advancements in data science and predictive modeling are playing an increasing role in risk assessment. This includes the development of:


- Wildfire models specifically for underwriting purposes.

- Early warning systems to protect people and property.

- Wildfire vulnerability analytics for assessing and mitigating risk.

- Post-event response solutions for streamlining claims and aiding recovery.


The increased prevalence of wildfires has far-reaching implications for both the insurance industry and society at large. As we witness wildfires evolve from being a secondary peril to a primary one, the need for specialized talent in Catastrophe Risk Modeling has never been more critical.


This trend is not only reshaping the talent landscape in the (re)insurance industry but also redefining how we approach risk management in a world grappling with climate change and its devastating effects.

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