In Strategic Business Risk 2008, Ernst & Young surveyed over 70 global insurance industry analysts to determine the top risk factors facing the insurance industry. The study determined climate change was the number one risk factor, followed closely by demographic change. These two risk factors affect the insurance industry in various ways; for example:
- Claims for damages from wildfires, floods, extreme weather directly impact property and casualty insurers. Over the past 30 years, climate change has nearly doubled the amount of forest area lost to wildfires in the western United States.
- Adverse climate changes reduce crop yields, resulting in more agricultural insurance claims.
- Climate changes affect health and mortality, which in turn affects health and life insurers.
- Catastrophic mortality can cause unexpected life insurance payouts.
- Unexpected mortality improvements lead to longer than expected annuity and pension payouts in both private and public sectors. The problem is compounded by other issues such as low investment yields.
We intend to take a multi-dimensional approach to our research, focusing not only on modelling and risk measurement, but also unexplored avenues for actuarial study and practice, including participation in matters related to the Kyoto Protocol, and presence in capital markets that specialize in transferring demographic and climate risks.