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Article | Willis Research Network Newsletter

Impacts of climate change on flood risk

Risk & Analytics|Property|Reinsurance|Climate Quantified
Climate Risk and Resilience|Insurer Solutions

By Geoffrey Saville | December 19, 2019

New requirements from industry regulators have required companies in the UK insurance market to assess their risk related to climate change. Our experts at Newcastle University responded to the call and helped to develop answers and advice for our clients.

Earlier this year, Willis Towers Watson colleagues leveraged the Willis Research Network (WRN) collaboration with Newcastle University to answer client questions, received by our Willis Re International team, on the Bank of England, Prudential Regulation Authority (PRA), General Insurance Stress Test 2019, which this year included climate change scenarios. One of these scenarios played to the strengths of our partners at Newcastle University (Prof. Chris Kilsby and Dr. Francesco Serinaldi) as experts in assessing flood risk. The question focussed in the PRA’s requirement for an understanding of U.K. inland flood in relation to indicative climate change scenarios defined by the PRA. This work was important in advising our clients on the projected portfolio losses due to these climate change scenarios and was presented at a client event for the London reinsurance market in late September. A solution was supplied by Prof. Kilsby quickly, and in a form that we could translate to our business needs, showing the adaptability of our WRN partners. As regulatory authorities in other countries add climate risks to their stress test requirements, this is sure to be theme that all regions will need to address.

Model adjustments based on science

The physical parameters that define flood risk vary spatially. The most explicit climate change signal can be seen at in-peak river flows. Our approach involves using statistical analysis to quantify the estimated spatial variation in flood risk. The approach then leverages this scientific method to provide model adjustments and stress tests to quantify flood loss impact using a method that is repeatable for other regions.

Continuing efforts

Building on the initial request from the PRA, our collaboration is now focussed on building a more comprehensive framework to quantify the climate change impact on flood risk in the U.K. using the U.K. Climate Projections project outputs and the variation of river peak flows across the country associated with different climate scenarios. This is based on peer-reviewed literature which relates to systematic shifts in return period of annual maximum river flows due to climate change impact. As regulations continue to require deeper assessments of climate change related risks, this applied research will no doubt provide valuable capabilities, as we help our clients navigate a changing regulatory landscape. The world leading statistical expertise available through our WRN partnership with Newcastle University remains a key part of our research portfolio and continues to feed directly into our client advisory services.

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