The debate on climate change has rapidly evolved in recent years. It is no longer on whether the evidence of human impact on climate change is real, but on whether key mitigating strategies being adopted are sufficient. While actuaries are already developing models to quantify the impact of climate change on insurance businesses, it is becoming increasingly evident that the actuarial community’s understanding of climate risk is not yet as developed as its expertise on traditional insurance risks such as mortality risk.

This lecture will introduce actuaries to ‘traditional climate models’ used in climate research and the underlying science of global warming. Key highlights include: 

• Section 1 – Introduction to climate change. Starts by defining an insurance problem (e.g. pricing of a specific product) and introduces the audience to the science of climate change e.g. greenhouse gas physics.
• Section 2 – Introduction to Energy Balance Models. Follows from Section 1 and introduces the audience to energy balance models. Results from these EBMs are then applied to the insurance example presented in Section 1.
• Section 3 – Forecasting future emissions. Focusses on how simple emission forecasts can be developed and how these can be used to model climate variables.
• Section 4 – Introduction to General Circulation Models. Introduces the audience to GCMs and applies results obtained from running a ‘simple’ GCM to the insurance problem presented in Section 1.
• Section 5 – Closing Remarks. A more in-depth conversation on climate models and how useful these models are in determining the impact of climate change on traditional life insurance risks such as mortality rates.

Practical outcomes:

• Learn about 3 different climate modelling techniques.
• Learn (at a high level) how to interpret output from these models
• Learn how these models can be applied to the insurance world.