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The American Academy of Actuaries is the nonpartisan professional organization for actuaries in the United States. Actuaries are risk professionals who quantify and assist in managing risk, and apply their expertise and knowledge to a wide range of problems facing people in their everyday lives and businesses. In their work of estimating the costs of uncertain future events, actuaries utilize objective data in their modeling of risk.

Climate Risk—An Overview

Many Americans have felt keenly the effects of extreme climatic events: increased droughts in the western United States, higher rainfall and snowfall in the eastern part of the country, and greater damage from tornadoes, hurricanes, floods, and wildfires.

While climate scientists continue to refine their models, most data shows record-breaking warm temperatures in many parts of the world over the past several years. Acknowledging that the public debate on climate risk has often been contentious, the American Academy of Actuaries encourages the public to inform itself with objective information and data to more fully engage in the debate. This brief guide to climate-risk issues is offered to voters to help explain the growing costs and consequences of weather-related damages and thereby help them to better understand the positions of candidates during the 2018 congressional election campaigns.

Global Natural Loss Events (2017)

Number of Events                710

Overall Losses                                  $330 billion

Insured Losses                                 $133 billion

Fatalities                                10,000

Source: Munich Re


Largest Storm Losses (2017)

Harvey                                  $125 billion  

    Irma                                   $50 billion      Maria                                 $90 billion

Source: NOAA


Insured and uninsured losses due to weather-related activity vary widely on a yearly basis, but the trend over the past 30 years points to an increase in both the number of weather-related loss events and total loss amounts. A key component of weather-related damage in the United States has been increased building along  coastlines and rivers, and in other areas prone to hurricanes, forest fires, and severe storms. A rise in extreme weather-related events could increase losses in the future. While there is ongoing scientific debate on how fast the Earth’s climate is changing and how much is influenced by human activity, alterations in weather patterns have been observed worldwide, including:[1]

  • Seventeen of the 18 warmest years in the 136-year record have occurred since 2001.

  • The year 2016 ranks as the warmest on record.

Rising Property/Casualty Costs

Source: NOAA https://www.ncdc.noaa.gov/billions/summary-stats/

According to Munich Re, September 2017 was the most intense month on record for extreme weather events. 2017 was the most expensive U.S. hurricane season since 2005, with economic losses in excess of $300 billion. And the United States was not alone in experiencing extreme weather: Ireland, for example, had its worst tropical storm in more than 50 years.[2]

The past year is also among the three hottest years on record and the hottest year without an El Niño ever.[3] As a consequence, 2017 was marked by major wildfires in the United States, Chile, and Portugal, leading to significant economic costs and sadly more than 100 deaths in Portugal alone.[4]

NOAA: Key U.S. National Climate Assessment Findings

  • Global climate is changing and this is apparent across the United States in a wide range of observations.

  • Impacts related to climate risk are already evident in many sectors and are expected to become increasingly disruptive across the nation throughout this century and beyond.

  • Climate-related extremes threaten human health and well-being in many ways, including through more extreme weather events and wildfire, decreased air quality, and diseases transmitted by insects, food, and water.

  • Infrastructure is being damaged by sea level rise, heavy downpours, and extreme heat; damages are projected to increase with these continued climate trends.

  • Water quality and water supply reliability are jeopardized by climate change in a variety of ways that affect ecosystems and livelihoods.

  • Climate disruptions to agriculture have been increasing and are projected to become more severe over this century.

  • Ocean waters are becoming warmer and more acidic, broadly affecting ocean circulation, chemistry, ecosystems, and marine life.[5]

Actuaries Climate Index and Actuaries Climate Risk Index

In order to monitor changes in climate risks, the American Academy of Actuaries has joined with other North American actuarial organizations to develop the Actuaries Climate Index (ACI) [http://actuariesclimateindex.org/home/], which focuses on measuring the frequency and intensity of extremes in key climate indicators based on controlled observational data of temperature, precipitation, drought, wind, and sea level. The ACI covers the United States and Canada, with capability to display data by region.

A companion tool to the ACI, the Actuaries Climate Risk Index (ACRI) is scheduled for release later this year. It will assess who and what is at risk because of climate change, and quantify that risk according to the indicators of the ACI. The ACRI will reference where people live and the surrounding infrastructure, and look for relationships between climatic and socioeconomic factors. Both indexes will function as useful tools for actuaries, policymakers, and the general public.

National Flood Insurance Program (NFIP)

As floods become more prevalent and costly, there are a number of important legislative reforms that can be done to aid flood risk assessment and mitigation, and help address the NFIP’s sustainability.

Provisions in any legislation should encourage sharing of historical flood loss data with private insurers, growth of the private flood insurance market, and modernization of flood mapping—all of which are potential reforms that the Academy has  raised with congressional offices. Other areas for reform identified by the Academy include:

  • Addressing the NFIP’s debt, which is approaching $30 billion, and making it sustainable going forward, factoring in possibilities of future large megastorm losses.

  • Avoiding artificial pricing disparities that could arise due to debt and flood mapping surcharges imposed on NFIP policies but not on private insurance coverage.

  • Focusing more attention on repetitive loss properties to reduce overall losses in the program.

  • Providing additional funding for pre-flood mitigation efforts.

  • Taking into account rising sea level and its likely financial impact on the NFIP.

In April 2017, the Academy’s Flood Insurance Work Group published the comprehensive public policy report, The National Flood Insurance Program: Challenges and Solutions. It is available on the Academy website at actuary.org.


[1] Source: NASA/GISS—http://climate.nasa.gov/vital-signs/global-temperature

[2] Source: Munich Re—https://www.weforum.org/agenda/2018/01/the-biggest-risks-in-2018-will-be-environmental-and-technological

[3] http://www.noaa.gov/news/noaa-2017-was-3rd-warmest-year-on-record-for-globe

[4] Ibid.

[5] Source: NOAA—https://www.ncdc.noaa.gov/climate-information/climate-change-and-variability