Lately it seems there’s nowhere to hide from troublesome weather. The summer of 2023 was the hottest on record by a wide margin, and many local records have been smashed, including in China a scorching new highest-ever reported temperature of 52.2 °C (126 °F). Despite Canada’s deserved reputation as a cold climate country, for much of the summer many of its cities have been enveloped by thick smoke from an unprecedented wildfire season farther north. In the wet tropics of central Panama, the usual summer rains never arrived, pushing water levels in the Canal to an all-time low and shipping rates to record highs. And in Minneapolis where I live, the Twin Cities Marathon - scheduled for October 1 - was cancelled with only two hours’ notice due to dangerous heat.
In the aggregate, events like these carry an outrageously high price tag. Worldwide, the economic cost of weather and climate disasters was nearly $1.5 trillion over the decade 2010-2019. So far in 2023, the United States has experienced 23 separate billion-dollar disasters, the highest number ever (and the year is not yet over). This year’s summer heatwaves may have caused China’s gross domestic product to decline by more than a full percentage point, with Spain and Greece probably also having felt similar economic harm.
As a result, it’s no surprise the demand for climate analytics is booming. This past year, climate risk management attracted $343 million in new investment, with increasing contributions from later stage capital. By 2027 the global market for climate risk solutions is projected to grow to more than $4 billion. The sector’s human capital is also expanding, as more and more researchers move from academia to industry so their expertise can be applied more directly to the climate crisis. I’m part of that trend, having left a tenured faculty position at the University of Minnesota to join WTW last year. It’s exciting to step outside the ivory tower and help colleagues and clients make smarter decisions about weather- and climate-related risks. By guiding investment capital, affecting housing and insurance prices, and setting priorities for adaptation projects, our industry has a significant impact on the economy.
But because of that influence, regulators and policymakers are now paying closer attention to the business of climate risk. In the United States, this past April the President’s Council of Advisors on Science and Technology (PCAST) released a report to help Americans understand and prepare for the risks of extreme weather. Then in September, the White House Council of Economic Advisors hosted a roundtable discussion on climate modeling for risk management applications. I had the privilege to represent WTW at this meeting and want to share a few ideas discussed in that forum about the future of climate risk modeling.
In their April 2023 report, PCAST made three major recommendations to reduce or avoid harm from extreme weather under a changing climate. First, US federal agencies should work together to produce reliable estimates of weather risks (including extreme temperatures, intense rainfall, and high winds) for all parts of the country and every year between now and 2050. Next, the US ought to develop a national adaptation plan so communities are better prepared for extreme weather, disaster relief is distributed fairly, and the benefits and costs of adaptation options are better understood. And finally (and most relevant to the climate risk industry), the federal government should challenge the private sector to improve its tools for predicting the severity and frequency of weather hazards and the human and economic losses they will cause.
Why do we need better tools to assess weather risks? At the White House, several speakers emphasized that, under a changing climate, the recent past is not a reliable guide to the future. In many fields, the conventional approach to risk assessment is based on a retrospective survey of historic hazards and impacts. But when perils evolve — becoming more severe, more frequent, or more correlated — that same backwards-looking perspective will cause the true costs of climate-related damages to be underestimated. Of course, that gap provides the raison d’être for the burgeoning climate risk industry, which aims to predict how a host of weather-related perils will behave on a warmer world. Participants in the roundtable acknowledged the central contribution made by climate analytics to the (re)insurance industry and climate-related financial disclosures. But the same group also expressed strong concerns about the state of climate and catastrophe analytics, arguing these tools have critical shortcomings that lurk just below the surface.
Inside the White House, participants enjoyed a frank and wide-ranging discussion of the strengths and limitations of current climate risk offerings. Some industry representatives expressed concern about the necessary tension between end users’ desire for openness and the need for vendors to safeguard their own intellectual property. But across the room, there was unanimous agreement that any person or organization facing a climate risk deserves to know about it. In the ideal, everyone should have access to risk information tailored to their specific needs so they can identify places at high risk and make smart decisions about risk mitigation. To meet that goal, PCAST has advised the US federal government to take three specific actions in order to promote the development of a “stronger academic and private ecosystem of climate risk assessment”.
When you work as a climate scientist, you live under an essential contradiction: we do our best to make reliable predictions about future climate change, but really, we would rather those predictions not come to pass. That point was raised as part of my discussion on reproducibility in climate science with NASA’s Dr. Gavin Schmidt at a public event organized by the Minnesota Center for the Philosophy of Science earlier this year. Personally, I’d feel enormous relief if global temperatures would stop their march upwards, western, and boreal wildfires would become less widespread, and the southwestern United States would receive more water rather than less. But facts are that Earth’s climate has changed and unless we make rapid progress to reduce emissions, we must expect climate-dependent perils to respond in kind. For the climate risk industry, our core challenge is to uptake new scientific advances, produce accurate and individualized estimates of current and future risks, and clearly communicate those data and insights to our clients.
My colleagues and I in the WTW Research Network serve as the junction between our firm and its extensive and well-established network of research partners, all of whom are top experts in climate and hazard science. Whether we are harnessing the power of satellites to take the measure of destructive hailstorms, demystifying the impact of climate litigation on the insurance market, or considering the geopolitical implications of climate change, our research network has exactly the expertise required to translate the latest science on weather catastrophes into smarter risk management. And through our model evaluation team, we can provide deep insights into the performance of catastrophe and climate risk models and support our clients to take their greatest advantage from each tool.
Precisely because there’s nowhere to hide from weather and climate risks, our sector should expect the demand for its services — and the attention paid to its findings — to continue to grow.