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Environment: Why should actuaries care about climate science?

Climate Science papers are probably not a part of the actuary’s staple diet but they may be a scrumptious treat for anybody interested in risk, statistical modelling and the planet!

There are two papers, which came out in Nature magazine in February 2011 and created quite a ripple, which I strongly recommend to the actuarial community. These papers are only the latest in a number of major academic works, which examines the link between man-made Greenhouse Gas (GHG) emissions and extreme weather events.

The first paper ‘Anthropogenic greenhouse gas contribution to flood risk in England and Wales in autumn 2000’ by Pall et al, examines the attribution of a single flood event, namely the record floods of Oct-Nov 2000.

The second paper ‘Human contribution to more-intense precipitation’ by Min et al, examines the attribution of heavy rainfall across the Northern Hemisphere. Both these papers were submitted prior to the devastating floods of 2010 in Pakistan, Brazil, the Philippines and Australia. The gist of both the papers is that high levels of GHGs have contributed to higher temperatures, warmer oceans and higher levels of moisture in the atmosphere. The increased atmospheric moisture content has led to freakishly heavy rainfall and devastating storms.

The paper by Pall is an attribution study of the floods of 2000, which was the wettest autumn in England and Wales since records began in 1766, with floods causing severe damage, including damages to approximately 10,000 properties. Insured losses were estimated to be £1.3 bn. Pall carried out a modelling exercise and allowed for rainfall, runoff and stream-flow. They set up a large number of simulations and sensitivity tested their results by using different underlying conditions e.g. varying the temperature and levels of Co2. The results show that post-industrial levels of GHGs lead to a significantly higher chance of flooding. In 9 out of 10 cases the chance of flooding increased by more than 20% and in 2 out of 3 cases by more than 90%.

The paper by Min is an attribution study of heavy rainfall in the Northern Hemisphere. The paper examines the signatures of climate change in heavy precipitation and concludes that the probability of intense precipitation on any given day has increased by 7% over the last 50 years. Similar results had been suggested by various other scientists and organisations including the Intergovernmental Panel on Climate Change (IPCC).

Like any good actuarial report, the papers observe the uncertainties surrounding these modelled results. Like any prudent actuarial work, the papers also observe that the changes in extreme precipitation may have been underestimated by the models and future events may strengthen more quickly than expected and have greater severity.

Incidentally, the studies did not take into account data beyond 2000, so they missed the hottest decade, the hottest years (2005 and 2010) and the wettest year (2010) on record!

I found the conclusions of these papers noteworthy as they seem to strongly contradict the theories that human-caused climate change will cause harm only in the far-off future. In recent years extreme weather events like heat waves, floods and droughts seem to be becoming more common and more extreme.

In addition to the direct financial and human costs of these weather events, there may be various second-order effects of such extreme weather, including the forced migration of populations affected by climate change, damage to agriculture, political conflict and so on. These studies, which have attributed extreme weather events to human GHG emissions, may lead us to question how best to minimise the danger from future global warming and more importantly, how best to reduce and manage GHG emissions.

Of course not all climate science papers conclude that man-made activities cause climate change. For example, ‘Emergence timescales for detection of anthropogenic climate change in US tropical cyclone loss data’ by Crompton et al, says that the study carried out is unable to attribute an anthropogenic climate change influence on the behaviour of tropical cyclones in the Atlantic. This paper also mentions that identification of anthropogenic influences cannot be ruled out in the future.

It is important to understand the arguments made by both climate change ‘believers’ and ‘sceptics’. I think actuaries can actively contribute to this debate and discourse. Why do I think all this climate stuff is relevant for actuaries? Well for a start the condition of the planet and the effects of extreme weather are relevant for all countries and for all of humanity. And actuaries are humans after all - especially when a ’human error’ in a reserving report is found out!

More specifically, actuaries may like to think about the underlying assumptions and calibrations of Catastrophe models - do CAT simulations adequately allow for the probability of the increasing frequency and severity of extreme weather events?

Reading these and other papers on climate science would help actuaries understand the statistical methods and sensitivity tests used for catastrophe modelling, attribution studies, long-term modelling of economic variables and many other methods used by climate scientists and environmental statisticians.

Actuaries could potentially have a lot to contribute to this field of work, for example the development of the stochastic nature of climate models and the modelling of economic scenarios to quantify the effects of climate change. The general principle of attribution studies is something actuaries could identify with through their understanding of sensitivity and scenario tests.

GI actuaries may find these two papers on extreme weather events particularly interesting and also particularly alarming! But instead of bringing about a fit of doomsday alarm and a resignation to apocalypse now, climate science papers like the ones I have briefly described, actually give me hope; a hope that it is now becoming exceedingly clear that man-made climate change is affecting weather patterns and events. Plus a hope that governments, professionals and other people around the world would start taking man-made climate change seriously and start making bold decisions in order to manage GHG emissions and the effects of climate change.

Actuaries have an important role to play in saving the planet, albeit with the Profession approved calculator in hand! So the next time you’re hungry for something intellectually satisfying and environmentally beneficial, you can do worse than reading up on climate science!

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Agrotosh Mookerjee works with Aviva and chairs the UK Actuarial Profession’s microinsurance Working Party