Geospatial data can help insurance providers to mitigate climate change losses, says Heikki Vesanto
This year, England experienced its driest July since 1935, and the hottest on record. The 10 warmest years on record have all occurred since 2002, and the global average temperature has increased by 1.2°C above pre-industrial levels.
As summers have become drier and winters wetter, climate change’s impact on the insurance industry has been stark. From 2019 to 2020, Flood Re incurred claims at a gross cost of £160m – 10 times higher than the previous year. This experience, and projections around the future effects of climate change, highlight the importance of using data to tackle climate risk management.
Climate change implications for insurers
Climate scientists model climate change impacts based on Representative Concentration Pathways (RCPs), which are a measure of atmospheric carbon dioxide (CO2) concentration. These are then used to model climate change impacts. Four pathways are typically considered: RCP8.5, in which emissions continue to grow with minimal action, leading to a 4.3°C increase in the global average temperature; RCP4.5 and RCP6.0, which are medium mitigation pathways with a 2.4–2.8°C average temperature increase; and RCP2.6, a strong mitigation scenario that is consistent with the 2016 Paris Agreement.
Why is this important? Increased atmospheric CO2 concentrations are causing global temperatures to rise, which has knock-on effects for the climate. In the UK it will mean heavier rainfall, impacting future insurance claims, and drier summers, impacting subsidence and wildfire claims.
As global temperatures rise, the UK will be exposed to increased flood risk. Shifting rainfall patterns are a major driver of increased flooding. Projecting 10 years ahead, while the overall amount of rainfall will actually drop in parts of the country, severe downpour events will become more frequent and extreme.
Daily rainfall rates are expected to rise by 7%, with severe downpour events increasing by 14% by 2040 under RCP4.5. These rainfall events cause surface water and flash flooding, as London experienced in 2021: in addition to traditional surface water flooding, the city’s sewer system was backed up. Increased population and urbanisation has decreased London’s permeable surfaces, meaning its Victorian-era infrastructure could not cope with the increased rainfall. The overloaded drainage system caused pipes to back up into properties with basements, causing major losses of stock, business interruption and water damage. And the risk of similar events occurring is increasing: in London alone, more than 5,000 new basements have been excavated during the past 10 years, further decreasing permeability and increasing other risks such as subsidence.
Flood defences will play a significant role in curbing flood impacts. The UK government has pledged £5.2bn to improve flood defences during the next five years, but that investment must be continuous just to maintain the current level of protection. New-build homes also pose a problem. Since 2016, around 75,000 homes have been built in areas already at risk of flooding, representing about 9% of UK new builds – and a third are already at a high risk of flooding. That figure will rise as areas impacted by flooding continue to increase.
Rising sea levels are also associated with flood risk. Sea level rise to date is in line with RCP4.5 predictions, with an average increase of 10cm during the past 20 years. The baseline increase is not significant for most of the country, but under RCP4.5, sea levels are projected to rise more than a metre in parts of the country by 2100.
The impact of rising sea levels will be exacerbated by storm surges that could top coastal defences. The Department for Environment, Food and Rural Affairs estimates that a 35cm sea level increase will lead to a 50%–150% increase in the overtopping of current coastal flood defences, posing a risk to many coastal communities.
Rainfall changes will also impact subsidence. In the UK, this is primarily driven by the shrink-swell cycle in clay-rich soils, which swell and expand during the wetter winter months before contracting during dry summer periods. As winters get wetter and summers drier, this cycle will become more pronounced and subsidence risk will increase. There was a 300% surge in subsidence claims in 2018, in which a wetter-than-average winter was followed by a warmer summer.
In 2022 we will again see the risks of a dry summer, with some insurers already reporting a 200% spike in subsidence claims. The clay-rich soils in south-east England, where these weather patterns are already familiar, are currently most affected by subsidence.
Under RCP6.0, the area expected to be susceptible to subsidence will have doubled by 2050, extending further north and west in particular. Under the same pathway, it is expected to have doubled again by 2080. Areas currently at risk may experience even more extreme conditions, driving further subsidence cases. In London, the number of properties at risk is expected to increase from the current 20% to more than 50% by 2080.
Climate change will also drive an increase in windstorm activity over the UK, and related claims can be a challenge for insurance providers. Storm frequency is expected to increase while overall severity is likely to remain the same – meaning storms will be as powerful, but more frequent. The Association of British Insurers estimates that future insured losses are expected to increase by 18% within the next 100 years under RCP2.6, a strong mitigation scenario that seems increasingly unlikely.
Using data to mitigate climate change risks
Insurance providers can already reduce climate change risks through investment decisions, supply chains, repair and replace processes and building back better. At the underwriting stage and in live weather events, geospatial data intelligence such as live data on flood warnings and river flows can help our industry do more to predict, visualise and mitigate losses on consumers’ behalf.
Insurance providers can create a map of risks through desktop-based geospatial data visualisation tools. This data includes everything from a property’s characteristics (floors, roof type and so on) to its location and environmental risks, including subsidence. Near-real-time Environment Agency data, as well as highly predictive flood risk data from flood modelling organisations, give insurance providers an immediate picture of flood risk at point of quote and beyond.
Particularly valuable is historical flood data, which, when mapped, shows the maximum extent of all individually recorded flood outlines from rivers, the sea and groundwater springs, revealing areas of land in England that have previously flooded. It considers the presence of defences, structures and other infrastructure where they existed at the time of flooding, and includes floods where overtopping, such as at seawalls, river breaches or blockages, may have occurred.
When flood and other environmental data is viewed together with an insurer’s customer and policy data, data visualisation can help providers to pinpoint the properties and policyholders most at risk as flood or storm threatens. If we understand which policyholders could be impacted, on-the-ground resources can be located to support customers in the storm or flood’s path. Live flood data, updated every 15 minutes, allows insurance providers to track a storm’s path, giving customers valuable time to move themselves and their possessions.
The value of geospatial data intelligence in supporting climate risk management is clear. The insurance sector must act now to ensure it has access to this data at all stages of the customer journey to help better predict changing climate risks, price more accurately, mitigate losses and deliver swift and empathetic service at claim.
Heikki Vesanto is a manager in the Geographic Information System data science team at LexisNexis Risk Solutions, UK and Ireland