The Pivotal Role of Actuaries in Combatting Climate Change
The interest, passion and leadership of actuaries was on full display at the 2024 All Actuaries Summit.
Both the plenary and concurrent sessions showcased our ability to add value in leadership, risk management, influencing and technical roles when it comes to climate change.
Dealing with long-term, uncertain risks is our forte
Climate change is a complex, long-term and multi-disciplinary challenge. As demonstrated in plenary sessions, actuaries have the ability to join-the-dots, bring people together, and develop holistic plans.
In this area, key highlights included:
- The need for Australia to develop holistic, integrated transition and adaptation plans that balance the current need for emission reductions with the later, inevitable costs of hazard impacts, adaptation and resilience.1
- The complex interactions between risks and outcomes with cascading, compounding feedback loops. Understanding of these is limited, meaning that actuaries can add value through modelling, visualisation tools, and the ongoing monitoring of experience.2
- Adaptation responses involve economic and social trade-offs that need to be called out, understood, and managed with stakeholders.2
- Flood risk was discussed in a number of sessions, highlighting the need for consistent, accessible flood data and models that are accepted and used by all stakeholders. This includes federal, state and local government, who all have a role to play.3
Our technical ability allows us to assess exposures
Several concurrent sessions highlighted the data and statistical value that actuaries can bring to the table.
One session focused on how banks can assess and manage climate risk exposures in their residential mortgage portfolios. For banks, this requires a new level of data granularity; for example, to understand flood and coastal inundation risks, insurance coverage, and how these risks might evolve over the term of loans.4
Equipped with a deeper understanding of these exposures, banks are now realising they have a key role to play in national adaptation and resilience plans, including land use and building codes.
Other sessions focused on extreme tail risk and insurance losses; for wind, rain and hail across all parts of Australia. Climate extremes are monitored by the Australian Actuaries Climate Index, but monitoring insurance losses and the risk over time in various climate scenarios requires granular data and multi-disciplinary skills.5, 6
As respected professionals, we must provide leadership
Our risk, financial and statistical skills, combined with our ability to communicate complex concepts in a meaningful way, provide an opportunity to get involved and to add value. One session focused on a “just transition” that respects and addresses those who are impacted. This is important in maintaining public and political support. Our skills and experience in managing equity are highly relevant here, in making sure that countries, communities and future generations are treated fairly, rather than being left behind.7
As respected professionals, actuaries have an opportunity and a responsibility to help drive and navigate an orderly net zero transition, for the good of both business and society.
References
Sessions covered in this article are:
[1] Life and Income Insurance – the protection in danger of being left behind? Chair: Naomi Edwards. Speakers: Suzanne Smith, Brett Clark and Phil Fraser.
[2] Qualitative Assessment of Complex and Interacting Climate Risks. Chair: Jasdeep Singh. Speakers: Sharanjit Paddam, Evelyn Yong and Portia Elliot.
[3] Safer Homes and Affordable Insurance. Chair: Sharanjit Paddam. Speakers: Andrew Hall; Major-General (Retired) Jake Ellwood, Matt Collins and Jane Kern.
[4] Between the Orderly and Hot House World: A Practical Guide to Effective Climate Risk Management for Banks. Chair: Sarosh Batliwalla. Speakers: Sen Nagarajan, Sharanjit Paddam, Ruby Smith and John Evans.
[5] Unlocking Climate Indices: A Deep Dive into the Development, Science, and Applications in Insurance. Chair: Chao Qiao. Speakers: Tatiana Potemina, Rhys Whitley, Lisa Ye and Dr Nina Ridder.
[6] Joint Extremes of Precipitation and Wind Speed. Chair: Evelyn Yong. Speakers: Qihe Tang and Zhen Chen.
[7] Decarbonisation: How can Actuaries support a ‘just transition’. Chair: Alissa Holz. Speakers: Simon Bradshaw, Alan Greenfield and Sarah Wood.
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