Climate Risk—An Overview

MANY AMERICANS HAVE KEENLY FELT 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, and floods.

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 better understand the positions of candidates during the 2016 presidential and congressional election season.   

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.1 A key component of weather-related damage has been increased building along U.S. 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:

  • Global mean surface temperatures have increased by 0.6 degrees Celsius since 1951.2
  • Seven of the 10 warmest years on record for America’s contiguous 48 states have occurred since 1998.3
  • The fraction of global land area experiencing extremely hot summertime temperatures has increased tenfold over the past 50 years.4

North American Threat

Over the past three decades, the number of weather-related loss events in North America grew by a factor of five, according to a 2012 report by Munich Re. This compares with a fourfold increase in Asia, 2.5 in Africa, 2 in Europe, and 1.5 in South America. North America faces every type of hazardous weather risk—hurricanes, tornadoes, drought, flood, wildfire, and storms, according to the report. One reason is that no east-west mountain range exists in North America to prevent southern warm air from colliding with cold Canadian weather fronts.

Rising Property/Casualty Costs

As weather-related damages increase, the costs fall on insurers, businesses, and consumers. Four of the world’s five largest natural catastrophes ranked by insured losses in 2015 occurred in the United States, including winter storms, tornadoes, and wildfires, according to Munich Re. The National Oceanic and Atmospheric Administration (NOAA) recorded 88 U.S. weather/climate events that each had losses exceeding $1 billion between 2006 and 2015, compared with only 46 such events in the previous decade. A large proportion of these losses is not insured, and so the cost falls on individuals, businesses, and governments.

Here is NOAA’s breakdown5 of weather-related events:

  • The western U.S. has experienced hotter and drier temperatures over the past decade, which has led to more wildfires and crop failures. There were 16 drought and wildfire events where each loss exceeded $1 billion in 2006-2015, according to NOAA data, compared with 10 similar events between 1996 and 2005.
  • Damage from winter storms and freezes generally hit the eastern half of the United States. NOAA reported five winter storm and freeze events where losses exceeded $1 billion between 2006 and 2015, compared with five similar events in 1996-2005.
  • Water damage remains a problem, mainly in the South and Midwest. NOAA reported 18 flood and hurricane events with losses exceeding $1 billion between 2006 and 2015, compared with 19 from 1996-2005.
  • The biggest increase in damage from weather events over the past decade came from severe storms, which NOAA classifies as tornadoes, hailstorms, severe thunderstorms, derechos, and flash floods. There were 49 such events with losses exceeding $1 billion from 2004-2013, compared with 12 between 1996 and 2005.

Actuaries Climate Index and Climate Risk Index

In order to monitor climate changes, the American Academy of Actuaries has joined a group of North American actuarial organizations to develop the Actuaries Climate Index (ACI), which will focus 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 initially will cover the United States and Canada, but later could be expanded to other parts of the world where reliable data is available.

As a follow-on to the release of the ACI, the Actuaries Climate Risk Index (ACRI) will assess who and what is at risk because of climate change, and quantify that risk. 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 a useful tool for actuaries, policymakers, and the general public.

1 “Rise in Weather Related Risks,” Munich Re Group.

2 IPCC Fifth Assessment Report: Climate Change 2013,” Intergovernmental Panel on Climate Change.

3 Climate Change Indicators in the United States, 2012,” Environmental Protection Agency.

4 “Perception of Climate Change,” James Hansen, et al. Proceedings of the National Academy of Sciences of the United States of America, March 29, 2012.

5 National Oceanic and Atmospheric Administration,