This Fall event was a follow-up to a Climate and Environment Program Area meeting with the California governor’s office in July. There, the California Insurance Commissioner, Dave Jones, recognized the value of Sandia’s climate-impact modeling and analysis work, led by Stephen Conrad (manager of Sandia’s Resilience and Regulatory Effects Dept.), and wanted to connect that work with the actuarial community.

Change in Projected Western US Water Demand through 2030: Demand is based on projected populations in each watershed, as well as climate-influenced changes, such as higher energy use due to warmer temperatures, higher irrigation.

Change in Projected Western US Water Demand through 2030: Demand is based on projected populations in each watershed, as well as climate-influenced changes, such as higher energy use due to warmer temperatures, higher irrigation.

A goal of the event was to educate insurance actuaries on climate-science developments and share ideas about how to effectively incorporate this knowledge into insurance ratings—to stimulate “this important dialogue between those who model and measure climate impacts and those working to insure property and livelihoods against climate-related risks.” To begin the forum, three panels gave presentations:

  1. The current state of climate research.
    1. Kate Ricke (Stanford Carnegie Institution for Science: climate science and modeling);
    2. Theresa Brown (in Sandia’s Policy & Decision Analytics Dept.: water resources impacts); and
    3. Steve Conrad (infrastructure impacts and adaptations).
  2. Assessing and integrating climate risk into actuarial practices. The actuaries were very focused on individual assets and policyholders. Their time frame was at most several years out—corresponding to the lengths of their policies. They use proprietary catastrophic damage models to calculate likelihood and damages. Because they are proprietary, the underlying assumptions are not divulged and they are treated like “black boxes.”
    1. The reinsurers are way ahead of the actuaries (not surprising because the reinsurers cover the insurance companies against catastrophic events so big that insurance company would have insufficient liquidity to make good on their claims).
    2. The panelist from Swiss Re gave a presentation that included an example of insuring a hydropower plant against drought and inability to meet demanded electricity.
Pre-Hurricane “Swath” Analyses: The National Infrastructure Simulation and Analysis Center (NISAC) developed six hurricane scenarios based on risk using historical hurricane frequency and magnitude and population in the wind-damage zone. Resilience concepts can be repurposed to evalu-ate how current infrastructure systems will perform under future climatic conditions as compared to proposed adaptations in system design.

Pre-Hurricane “Swath” Analyses: The National Infrastructure Simulation and Analysis Center (NISAC) developed six hurricane scenarios based on risk using historical hurricane frequency and magnitude and population in the wind-damage zone. Resilience concepts can be repurposed to evalu-ate how current infrastructure systems will perform under future climatic conditions as compared to proposed adaptations in system design.

New tools to translate climate data into actuarial and economic risks. Sol Hsaing, an economist from University of California–Berkeley, gave a talk examining the likelihood of a variety climate hazards across all regions of the US. His work complements Sandia’s interest in evaluating the impacts of climate hazards to infrastructure systems on a region-by-region basis.

The rest of the forum focused on a roundtable discussion led by the Insurance Commissioner and Kate Gordon (from Next Generation) on opportunities and challenges for integrating climate risk into actuarial practices.

A top-level summary could be characterized as the climate research community would like to explore the possibility that insurance could incentivize changes that lessen the impacts of climate change The insurance industry’s interests were more practically oriented: how to properly price policies given a changing risk environment.

Approximately 35 people attended this by-invitation-only event. Patrick Sullivan, leader of Sandia-California’s Government Relations activity, facilitated Sandia’s meetings with the governor’s office in July and also helped initiate this forum. The Climate Risk Forum was organized by Next Generation and co-hosted by Stanford University’s Center for Energy Policy & Finance, the American Academy of Actuaries, the California Insurance Commissioner, and Sandia. Attendees described the forum as, “a good first meeting,” “a robust and productive discussion,” and “very much a cross-cultural experience.”

Read the full report on this forum.