Climate Risk Scores: Informed property-portfolio steering decisions

To evaluate how changing climate patterns will impact communities and physical assets, we have developed Climate Risk Scores (CRS). These reflect the aggravation of risk linked to climate change for different perils and how it compares across locations globally.

The Climate Risk Scores, accessible through our Property Insights solution, combine the latest climate models with our expertise in underwriting natural catastrophes and proprietary hazard layers. They provide valuable insights on how to mitigate potential property losses caused by adverse weather conditions resulting from climate change.

CRS reflect the impact of climate change on different hazards for global benchmarking:

• Wet scores: risk of river and flash floods in specific locations
• Sea level rise scores:  risk of storm surges and coastal flooding due to rising sea levels
• Dry scores: risk of wildfires, heatwaves and drought due to changes in extreme and mean temperatures and precipitation in specific locations

Background and challenge:

• Close to 80% of the insurer's property portfolio is concentrated in three western regions of France.
• Most of the insured properties are concentrated in the Nouvelle Aquitaine region. 
• Nouvelle Aquitaine is vulnerable to flood risk: a fluvial flood event is forecast to occur once in every 100 years. Each generation living in the region can expect to witness at least one heavy flood event in their lifetime.
• The lack of geographical diversification left the insurer vulnerable to accumulation risk.

¹ Footnote: calculated as value at risk x probability of flooding

Solution:

• The insurer had many opportunities to geographically diversify its property portfolio given the high concentration in the west.
• Opportunities needed to be analysed in the light of the perils of climate change in these regions.
• The Climate Risk Scores made it possible to conduct such analysis.

Conclusion:

• In Gironde, the CRS analysis indicated that the risk of fluvial flooding will not change over the years.
• Flood risk is not just fluvial. Climate change effects will include rising sea levels and rising sea levels are forecast to become critical for the entire Atlantic Coast by 2070. The implication is that property in Gironde will be at greater risk of coastal flooding.
• Through Climate Risk Score analysis, the insurer was able to identify areas for diversification for their property portfolio.

With Climate Risk Scores, embedded into Property Insights, we can help insurers understand the potential level of exposure to climate-change-related risk presented by the properties they insure:

Analysis of existing property portfolio facilitates the detection of risk concentration, based on:

• Losses related to physical damage to buildings, which can be assessed according to the characteristics of the properties (eg, building material), type of property (house, apartment in an apartment block) and existing flood-proofing measures.
• Over- or under-exposure relative to the overall market and how the exposure level aligns with the insurer's own risk appetite.
• Concentration of property assets in areas exposed to natural perils. The exposure should be analysed in the context of the nationwide footprint and the perils to which different regions are or will be most susceptible.

As in the example above, the CRS information can guide insurers on how to spread their risk, prioritising the areas in which to rebalance exposures and where there is greater urgency to do so.

A defining utility of the CRS framework is also the representation of risks in dynamic map and graphic form. The visualisation of data tells the story of the physical risks faced by existing property portfolios and how these would evolve over time under different global warming scenarios.