Climate for Change an Actuarial Perspective on Global Warming Essay Example

and reinsurance companies was being formed to address climate and environmental issues. Since late 1995, more than 81 companies from 25 countries have signed the United Nations Environmental Programme's (UNEP) Statement of Environmental Commitment for the Insurance Industry. These companies have publicly endorsed taking action to reverse the causes of climate change.

Several insurance companies have attended various climate change conferences, such as the gatherings in Berlin, Geneva, and Kyoto. Additionally, some of these insurers have participated in the Intergovernmental Panel on Climate Change (IPCC) process and made contributions to a chapter in the "Second Assessment Report." The IPCC is organized by the World Meteorological Organization and UNEP and consists of over 2,500 scientists and experts from 55 countries. Munich Re was one of the first insurance companies to publicly express concerns about climate change, which can be seen in its 1990 Windstorm report.

Gerhard Berz, Munich Re's climate scientist, warns that the insurance industry should not believe it can adapt to a changing climate. According to him, climate change will create new extreme values for insurance-related factors and lead to unprecedented natural disasters. Berz asserts that the insurance sector must demand immediate political action on climate protection and an end to uncontrolled greenhouse experiments.

Arkwright Mutual, a primary insurer in the US, publicly expresses concerns about increased flooding caused by global warming, river diversions, deforestation, and land use. Allstate also shares its worries through a statement. However, only a few US insurers actively address this issue, including European insurers with prominent offices in the US. Trade associations that previously met Vice President Gore in 1995 now adopt a more cautious approach when considering public policy

matters.

The participation of US insurers in the UNEP initiative is notably lacking except for Employers Re and brokerage AON.

The opinions of greenhouse skeptics have had a strong influence on various Congressional committees. The research on global warming conducted by NASA and NOAA had such political and economic implications that the 104th Congress decided to severely limit their budgets. In July 1998, when the House Small Business Committee discussed the state of global warming research, only skeptics were initially invited as witnesses by Chairman Jim Talent.

According to the IPCC, there are varying levels of uncertainty in its predictions, particularly regarding extreme weather. These uncertainties primarily concern the timing and magnitude of climate change impacts. While some scientists challenge the IPCC's findings, insurers in the UNEP initiative argue that any potential for climate change calls for action. Actuaries and risk managers should consider multiple statistical measures when evaluating information on climate change.

The general consensus among IPCC scientists is that there is a discernable human influence on climate. Although climatologists cannot definitively attribute these changes to humans with absolute certainty, the probability of natural

variation causing these events is minimal. Given the controversy surrounding this topic, it is important for actuaries and risk managers to comprehend both the recent scientific research on climate change and the distinctions between the rhetorical and scientific debates.

Actuaries, with their expertise in statistics and modeling, have a distinct advantage in comprehending the analytical methods of climatology. This knowledge enables them to contribute not only to their clients but also to the public discourse on climate change. The Climate Change Equation encompasses various forces that are believed to influence climate conditions. Although scientists discuss the relative significance of each force in the recent temperature rise, it is widely acknowledged that human activity, such as the release of greenhouse gases like carbon dioxide, methane, nitrous oxides, and chlorofluorocarbons (CFCs), plays a significant role. The increase in these gases since the industrial revolution restricts the normal dissipation of heat from the earth. Additionally, climate change is influenced by sulfate aerosols produced by volcanic eruptions and fossil fuel emissions.

When mixed with other gases and water vapor, gases and water vapor have the ability to reflect incoming sunlight, resulting in a cooling effect on the earth’s surface. The land's capacity to absorb CO2 and maintain the hydrological balance can be reduced by devegetation. Ozone plays a crucial role in absorbing harmful solar radiation as well as outgoing terrestrial radiation. The depletion of ozone caused by CFCs has contributed to cooling in the stratosphere; however, smog-induced accumulation of ozone in the upper troposphere has had a warming effect instead. Additionally, Solar Magnetic Cycles, which typically last about 22 years, are connected to sunspot activity and the

solar wind.

Recent research suggests that alterations in the cycle can impact the quantity of solar radiation received, which could result in changes in precipitation patterns. Moreover, the oceans contain substantial amounts of heat and interact with global circulation patterns, evaporation, and convection of water vapor. Additionally, occurrences such as hurricanes and El Ninos have the potential to release considerable amounts of heat. These factors offer potential indications of climate change. Temperature records obtained from ground-based measurements reveal a warming trend of around 1 degree Fahrenheit over the last century, with multiple record-breaking extremes occurring in 1998.

According to NOAA statisticians, the warming has not been uniform. While the 1930s were almost as warm, the current warming in the 1980s and 1990s stands out because it has occurred despite recent cooling influences such as increased sulfate aerosols and enhanced soil moisture from precipitation. NOAA also notes that this recent warming could lead to a rise in atmospheric moisture and extreme precipitation events in the United States and Europe. It could also result in increased severity of floods in the U.S., sea level rise of about 4 to 10 inches, rapid retreat of low-elevation glaciers and ice fields, permafrost melt, bark beetle attacks on ancient Alaskan forests, and changes in insect migrations towards higher latitudes. The IPCC, Stevens, Parmesan state that El Nino events may become intensified and more frequent. Historically, strong El Nino occurrences have happened every 42 years on average since 1525; however, the two most powerful events (1982–83 and 1997–98) took place just 15 years apart.

Over the past two decades, there has been a higher occurrence of El Nino

events compared to La Nina events (Quinn and Neal). The warming of oceans can potentially affect the intensity, paths, and frequency of hurricanes or typhoons. Various hurricane models offer conflicting predictions - some indicate a decrease in activity due to opposing atmospheric effects, while others suggest an increase. It is important to note that even if the average storm conditions remain unchanged, changes in storm paths could pose a threat to regions that are historically unprepared for such events. In certain areas, the risk of wildfires is heightened by increased winter precipitation followed by springtime plant growth and hotter, drier summer conditions.

Insurers have suggested that global warming could be a factor in recent major wildfires, including the Berkeley/Oakland Hills fire in 1991 according to Swiss Re. Drought conditions can lead to soil shrinkage (subsidence), which exposes building foundations to damage. The Association of British Insurers has reported claims totaling ?2 billion over the past decade, with 45,900 claims in 1997 from British insurers alone. While adjusted for inflation, losses from natural disasters have increased twenty-fold since the 1960s, actuaries are still working to determine the specific contributions of increased exposures due to demographic trends, decreased exposures due to mitigation efforts, and changes in the frequency or severity of events. Actuarial Science and Climatology consider climate as a broad description of weather conditions.

Climatologists examine a range of factors, including temperature, moisture, precipitation, wind conditions, cloud cover, and air quality. They analyze the basic thermodynamic, geophysical, and biological processes that influence these weather conditions. Like actuaries, climatologists depend heavily on statistics due to limited opportunities for experimentation. Although they can study specific isolated

aspects of weather phenomena, they are unable to replicate large-scale processes in a laboratory environment. Insurance companies specializing in weather-related risks are now hiring more climatologists.

Insurers and reinsurers in the Risk Prediction Initiative in Bermuda are analyzing climate science, hurricane risks, El Nino, and climate change. They are developing catastrophe models that predict weather-related events using a combination of actuarial and climatological tools. Both professions now use computer models to simulate future scenarios. Climatologists have developed general circulation models (GCMs) to forecast global climate conditions as greenhouse gas concentrations rise.

The original General Circulation Models (GCMs) initially showed an inaccurate warming trend for the entire planet. However, adjustments made regarding sulfate aerosols resulted in models that better matched historical data and the spatial variations of heating and cooling. Currently, research on solar magnetic variations may offer an explanation for a cooling period observed from the mid-1940s to the early 1970s. Nevertheless, there is still room for enhancement in terms of spatial resolution, representation of storm tracks, cloud behavior, and upper ocean characteristics within GCMs.

Climate models, despite their limited calculations due to slow computing speed, have been endorsed by most climate scientists represented by the IPCC. These models are considered convincing as they can accurately reflect current climate trends. As stated by the IPCC, projected climate values include a temperature rise of 2 degrees F to 6 degrees F by 2100, a sea level increase of 3 feet, and potentially notable alterations in precipitation patterns and climate variability. These forecasts rely on the results generated from Modeling for Extremes and Variability GCMs that operate on super computers.

GCMs have the

ability to produce data on average temperature, barometric pressure, and precipitation at different altitudes and during different seasons. This allows for predictions regarding sea level rise, shifts in agricultural regions, species migrations, glacial melting, and tundra sinking. However, because of computational constraints, these models are only able to provide spatial resolution for areas approximately the size of Oregon. As a result, most GCMs struggle to accurately forecast severe weather events and climate variability – information that is essential for insurers and risk managers.

Researchers have conducted studies at regional and local scales to investigate the potential effects of climate change. These studies have examined how changing average temperature and precipitation can impact extreme events and climate variability. For instance, Lawrence Berkeley National Laboratory (LBNL) and the University of Michigan experts have developed a model that predicts wildfires in various regions of California based on projected climate conditions. Furthermore, an LBNL modeler has simulated flood scenarios in California and other places.

The further development of impact modeling for various natural disasters, such as floods, hail, ice storms, and windstorms in the face of future climate conditions could prove beneficial for insurers. This is akin to how the Risk Prediction Initiative has aided insurers in understanding hurricane risks. Similarly, climate impact modelers can gain insights from insurers' expertise in assessing potential losses and the efficacy of mitigation measures. Certain studies have utilized statistical models to determine seasonal temperature distributions by considering mean, variance, and auto correlation (the likelihood of consecutive hot days). These statistical models indicate that even a slight change in mean temperature or precipitation can have significant repercussions if variance remains constant. A

minor shift in mean temperature can lead to a disproportionately high increase in extremely hot days. According to NOAA data, temperature distributions typically follow a Gaussian pattern or 'bell' curve. Consequently, when the peak point of this curve shifts towards higher values, the likelihood of surpassing exceedingly high temperature thresholds significantly rises.

An increased likelihood of high temperature raises the probability of heat waves. According to NOAA, a 5-degree F change in Chicago summer temperatures would result in a five-fold increase in the chance of a heat index of 120 (which measures both heat and humidity), from 1:20 to 1:4. As the probability of experiencing extreme heat for one day rises, so does the likelihood of consecutive days of extreme heat. This has significant implications for crops, ecosystems, power production, and human health. It is important to consider not only the average shift but also the shape of these distributions.

If the decrease in temperature variance with future warming, as it appears to be happening, occurs, there may be a reduction in the likelihood of extreme heat. Numerous studies analyzing temperature records from the 20th century suggest a decline in temperature variance during warmer periods. While climate models produce varying results, if we consider the warming observed over the last century as indicative, additional warming could lead to increased intensity of precipitation, diminished fluctuations in daily and nightly temperatures, and more frequent and severe El Ninos.

During the past century, climatologists at NOAA have found an important rise in the occurrence of intense precipitation events in both the United States and Europe. Theoretical evidence supports the possibility of increased intensity of precipitation.

Additionally, changes in climate variability can also involve other nonlinear processes such as soil saturation or snow melting. While heavy rain can cause runoff at any given time, its impacts can be significantly amplified by soil saturation. Floods may occur due to irregular periods of rainfall or higher temperatures that result in the melting of snow packs.

Insurers may benefit from gaining a deeper understanding of climate change-influenced hydrological trigger models. The IPCC, known for being critical of its own findings, fully recognizes the uncertainties inherent in climate projection research based on current knowledge. Numerous climate labs are currently working to improve the accuracy of global climate models by focusing on enhancing spatial resolution in ocean and atmospheric grid points, simulating cloud and water vapor behavior, studying long-term ocean circulation patterns, and exploring climatic cycles such as El Nino.

The topic of global climate change has received considerable attention and analysis, with the conclusions made by the IPCC facing various challenges. These challenges can be divided into three groups: 1. Reinterpretations of data or studies on climate processes that propose more positive outcomes; 2. Optimistic interpretations of how climate projections will impact different industries and public health; and 3. Negative interpretations regarding the costs associated with reducing fossil fuel usage. Certain analyses questioning the IPCC's findings have undergone academic peer review, which entails assessing the quality of a researcher's analysis and conclusions.

Ross Gelbspan, a Pulitzer prize-winning journalist, has accused certain critics of the IPCC of serving as PR representatives for their sponsors in the industry, as they publish non-peer-reviewed work. In terms of climate science, its complexity often hinders public participation

in analysis. The news media usually excel at clarifying scientific theories and viewpoints; however, few individuals possess the expertise or perseverance to conduct a comprehensive examination of a scientist's analytical approaches.

Actuaries and risk managers possess both the expertise to assess research methods and the dedication to comprehend risk parameters in-depth. It is important for them to accurately interpret weather-related patterns. The selection of an appropriate analytical approach can determine whether a noteworthy trend is identified or only random variation is observed. For instance, if a medical or life insurance department requests an evaluation of the connections between anticipated climate shifts and human well-being.

The request initially seems difficult to understand, but most climate models indicate that as greenhouse gas concentrations increase, there will likely be more warm summer days. This could result in the spread of insects, including those that carry diseases such as malaria, dengue, and equine encephalitis. Furthermore, there may be an increase in the number of extremely hot days, like the lethal heat waves experienced in Chicago in 1995 and the southern United States in 1998. Two studies have made different predictions about how global warming will affect mortality rates.

Although extreme temperatures may only impact a small portion of individuals who have access to life and health insurance, these events also affect crop and electric utility revenue insurance. Two studies offer an interesting comparison in terms of methodology. The first study, "An Evaluation of Climate/Mortality Relationships in Large U.S. Cities and the Possible Impacts of a Climate Change," conducted by Kalkstein and Greene in 1997, examines the influence of climate change on mortality rates in major cities

across the United States. In 1996, Moore conducted the second study titled "Health and Amenity Effects of Global Warming Revised May 30, 1996," which focuses on the health and quality of life repercussions caused by global warming. It is important to note that Kalkstein and Greene are contributors to the Intergovernmental Panel on Climate Change (IPCC), with their research receiving support from the Environmental Protection Agency (EPA).

The EPA and other environmental agencies worldwide acknowledge climate change as a significant environmental threat. Moore, a Hoover Institution fellow and contributor to the World Climate Report supported by coal interests, recently released a book titled "Climate of Fear: Why We Shouldn't Worry About Global Warming", which expands on his 1996 public health studies. While the Kalkstein and Greene study suggests an increase in mortality rates, the Moore study presents an opposing argument, claiming that overall public health improves with climate changes. Both studies focus on deaths caused by extreme heat and cold, attributing most heat-related deaths to individuals with cardiovascular and circulatory disorders. Kalkstein and Greene propose that people's health is affected by various factors within their surrounding air mass, including temperature, humidity, cloud cover, and wind speed.

The study examines how seven different air masses impact mortality rates in 44 urban areas. It also forecasts the potential increase in frequency and duration of these air masses due to climate change scenarios from leading U.S., British, and German laboratories. Additionally, the study takes into account the assumption that individuals will adapt to these changes. For instance, if New York City encounters temperature conditions comparable to present-day St. Louis, it is assumed that the percentage of

New Yorkers using air conditioning will be equivalent to that of current St. Louis residents.

The text discusses the adjustment of results for reductions in winter mortality and the projection of an increase in annual weather-related deaths. The Moore study, on the other hand, examines correlations between mortality and statistical temperature measures. One of Moore's underlying assumptions is that any increase in mortality caused by heat waves would be offset by a decrease in mortality due to cold spells. The study includes two regression analyses: 1) comparing mortality to average annual temperature for 89 large U.S. counties in 1979, and 2) comparing mortality to average monthly temperature for Washington D.C. from 1987-89, a period characterized by hot summers.

The regression analysis indicates that mortality rates are lower in summer than winter and also lower in warmer regions compared to cooler areas. Taking these factors into account, Moore predicts that an increase in temperature will result in a decrease in mortality. With a temperature rise of 4 degrees Fahrenheit, he estimates a decline in mortality between approximately 37,000 to 41,000 per year. If given the option of analytical approaches, which one is more reliable from an actuarial standpoint?

The Moore analysis assumes that future warming will cause northern climates to resemble existing southern climates, disregards the potential health consequences of changes in southern climates, moisture regimes, and extreme weather severity, and assumes that people will adapt quickly to these changes. However, these assumptions are optimistic because climate change is likely to create a noticeably different climate in the North compared to the South. Moreover, recent El Nino events have shown an increase in

extreme weather events. Additionally, uncertainty remains regarding how rapidly people can adapt to these climate changes.

Moore's approach is similar to the current actuarial methodology in situations where there is a lack of detailed data. However, it differs in that it does not involve a thorough examination of extreme heat episodes. Instead, Moore combines mortality statistics over longer periods because he believes that mortality tends to decrease after a devastating heat wave, resulting in no overall change in death rates. To illustrate this point, he compares the ratio of deaths in winter to deaths in summer during an extremely hot summer period (1987-89) in Washington D.C. with a previous period (1952-67) for the entire region.

The ratio in Washington, D.C., in the United States was 116:100 from 1987-89 and 113:100 for the entire country from 1952-1967. According to Moore, if hot weather were harmful to life, the difference between summer and winter death rates should have been smaller during the period with hot summers (1987-89) compared to (1952-67). However, it is important to note that Moore is comparing two different regions.

Furthermore, when examining summer mortality, variations in winter mortality must be taken into account. When analyzing statistics for aggregated regions and time periods, the individual impact of heat spells remains hidden. To strengthen Moore's argument about the minimal effect of killer heat waves on overall mortality, it would be beneficial for his analysis to demonstrate the actual trends in gross mortality rates during a specific killer heat wave, both before and after it occurred.

In the Kalkstein and Greene study, a detailed assessment of the health impacts of climate change

is conducted for each of the 44 regions examined. Contrary to Moore's assertion that cold temperature mortality is decreasing, they present multiple studies demonstrating that extreme heat has a greater impact on death rates than cold temperature extremes. Moreover, they emphasize evidence indicating that respiratory diseases are primarily responsible for winter-related deaths, as these illnesses spread more easily when people spend increased time indoors.

The research examines whether warmer winters can result in less time spent indoors and consequent decreases in mortality rates. Both studies recognize that mortality rates temporarily decrease after a heat-related increase, but Kalkstein and Green use data from actual heat waves to estimate this effect for future forecasts. In contrast to Moore's belief that the temporary rise and fall in overall mortality level out over time, their analysis of past heat waves yields different outcomes.

Integrating the Natural and Actuarial. If insurers examine extreme weather events, they will closely consider cause and effect. An actuary creating a property insurance rate filing for coastal storms can use a regression analysis of property claims by region nationwide. Just as Moore's analysis indicates reduced mortality in warmer regions, the property analysis could reveal increased claims along the East Coast. However, historical property rate filings for coastal areas have relied on more localized analysis.

Research on the impact of individual storms has enabled quantification of their effects for future predictions. Advanced catastrophe models aim to replicate coastal storm effects by considering intensity and landfall location, while also accounting for vulnerabilities. These models generate multiple scenarios to estimate potential storm consequences each year. Kalkstein and Greene adopt a similar approach, analyzing extreme heat

and cold periods and predicting their impacts under different warming scenarios.

Despite opposition from Congress to the Kyoto Protocol and climate research, certain insurance organizations acknowledge the importance of continuing research on global warming. The Reinsurance Association of America advocated for NASA and NOAA in front of the 104th Congress to preserve funding for global warming research. Improved climate research would be advantageous for insurers, just like having more comprehensive records of past climate effects.

Actuaries have the potential to evaluate the financial consequences of projected climate impacts, assess assumptions made by climate impact models, and examine the feasibility of mitigation efforts. Their role in advising Congress on health care and Social Security highlights their ability to contribute similarly in addressing climate change. By collaborating more closely with climate impact modelers, actuaries can improve projections of climate impacts and enhance public understanding of climate change. At the very least, actuaries can strengthen their evaluation of climate risks.