Gary Davis explains how integrated Earth observation, using new data and technological tools, could help actuaries to tackle climate risks
We can no longer deny the increasing number of extreme weather events, or hide from their effects. Storms and floods are devastating communities while posing a heightened risk to the insurance industry; droughts and soil erosion threaten vital food sources and corporate supply chains. It is critical that we are able to understand and manage such risks, and the role of actuaries is becoming increasingly important as organisations across all sectors seek to protect their interests - and people - against the worst effects of a changing global climate.
However, forecasting climate change is a particular challenge, as new and extreme weather patterns defy prediction; the years of past data that are traditionally relied upon for statistical analysis are no use here. With their unique skillset, actuaries have a key role to play in supporting the institutions they advise to improve resilience to extreme climate events. Where can they get the data required to model risks and plan for disasters?
The answer is that new data needs to be generated faster, processed more efficiently, and used to build up-to-date, almost real-time models that can cope with the changing climate. Fortunately, technology is providing many of the necessary tools, enabling actuaries to bring a vast array of insight into advanced mapping systems.
The Earth observation (EO) industry - powered by satellite programmes that beam a wealth of information back to Earth - is able to provide some of the raw data for this process. Satellites have been providing information on the weather for years, but now they are also being used to monitor deforestation and forest regeneration, farming, soil moisture levels and canopy density. Additionally, recent advances in technology around unmanned aerial vehicles (UAVs) mean that fleets of drones stand ready to provide additional data over smaller areas - at short notice and reasonable cost.
Ongoing programmes that use these methods to monitor and protect rainforests, and to inform the use of environmental protection resources, show that this data is far more valuable if it can be calibrated and informed by people on the ground.
Take flooding as an example: the direct costs of flooding in developing countries were estimated at more than $10bn per year between 1990 and 2000, with high levels of variation due to extreme large-scale events. In 2015 alone, 150 million people were affected by extreme flooding events. During the next century, precipitation extremes are likely to increase as the climate warms, increasing economic and human impacts.
Damage costs are also rising, as development often places economic assets and settlements in areas that are exposed to climate extremes. While this is, to an extent, an inevitable consequence of growing populations and economies, there is significant scope for improvement when it comes to minimising the siting of developments in high risk areas. The insurance industry is well placed to take a leading role in this process.
Among the data available to those trying to understand and map flood risk, traditional sources such as upstream river measurements and climate forecasts have been available for some time. Increasingly, though, it is possible to map floodplains using terrain models. EO provides on-the-ground research to add baseline conditions to the model; this can be combined with spatial data generated by EO systems to track and categorise extreme weather events, as is seen in hurricane tracking. Such systems can also help raise timely objections to other developments that will increase fast surface run-off into river systems, or crop choices upstream that may increase erosion and affect soil moisture levels.
Actuaries are experts in probability and prediction: they should be helping to determine which tools are used, and how best to use them. Indeed, there is scope for developing further sampling techniques and data points in response to expert demand - often facilitated by the falling cost of satellite and UAV-gathered data. The key is to bring all of these information sources into a single system that can map the changing landscape of risks and probabilities in a constantly updated model. This will help people and businesses to prepare and protect themselves in a changing world.
Gary Davis is CEO of sustainability reporting company Ecometrica
