Although many industries have fought to prevent action on climate change, there's at least one major business that's taking it seriously, according to a recent perspective in Science. Climate change is estimated to cost the world economy $1.2 trillion annually, which is proving to be a stress test for the insurance industry. Lest you think that's a niche concern, insurance accounts for seven percent of the global economy and is the world’s largest industry.
Increasingly, weather and climate related catastrophes are costing insurers. The number of weather-related loss events in North America has nearly quintupled in the past three decades, according to a recent report from MunichRe. Sandy alone cost New York and New Jersey $80 billion, affecting individuals and business, and impacting health. Claims have more than doubled each decade since the 1980s (adjusted for inflation) and paid claims now average $50 billion a year worldwide.
Many insurers are using climate science to better quantify and diversify their exposure, more accurately price and communicate risk, and target adaptation and loss-prevention efforts. They also analyze their extensive databases of historical weather- and climate-related losses, for both large- and small-scale events. But insurance modeling is a distinct discipline. Unlike climate models, insurers’ models extrapolate historical data rather than simulate the climate system, and they require outputs at finer scales and shorter time frames than climate models.