Aon embeds climate change considerations into flood risk models

Insurance and reinsurance broker Aon is embedding climate change considerations into its Impact Forecasting flood catastrophe risk models for Europe, thanks to a collaboration with the Karlsruhe Institute of Technology (KIT).

Flooding in Germany, photo from Christoph Reichwein – AFP

Coming on the anniversary of last year’s major flooding across Western and Central Europe, which accounted for $13 billion of the annual insurance and reinsurance market catastrophe loss burden, Aon said that by incorporation climate science into its flood risk model, it will help insurers access more accurate loss estimates, to better inform their underwriting, reinsurance and regulatory requirements.

“KIT provides a stochastic flood event set for different emission scenarios and time horizons if frequency and duration of extreme events change under future climate conditions,” the company explained. Adding that, “These scenarios will be integrated into all of Impact Forecasting’s European flood models over the next three years, enabling re/insurers to gain a physical view of flood risk based on both current and future climate.”

Adam Podlaha, head of Aon’s Impact Forecasting team, commented on the news, “In addressing the impact of climate change on our clients’ businesses, we have implemented our long-term strategy of atmospheric model development with short-term deliverables. Our collaboration with KIT is a significant driving force in ensuring that output from our modelling suite is based on the latest climate research. We are already witnessing the global challenges from climate change, and so this initiative aims to assist clients navigate volatily in their operations, build resilience and make better business decisions around risk transfer and risk mitigation.”

Aon’s Impact Forecasting team has incorporated Central Europe climate change studies and previous research from KIT into a Czechia flood model and its German flood model’s climate scenarios are scheduled for launch in the third quarter of 2022.

The flood risk models are integrated into Impact Forecasting’s loss calculation platform ELEMENTS, and will help insurers to assess the impact of climate-related losses on their portfolio for different time horizons, helping to identify where future European flood risk is caused directly by atmospheric or indirectly by weather-driven perils.

The risk models will incorporate future flood protection assumptions, and socio-economic and insured exposure changes in risk-prone areas.

Ladislav Palán, Impact Forecasting’s lead in climate change quantification for flood, also commented “Our study for Czechia shows the effect of a changing climate varies across Europe and depends on the size of river catchments. Keeping flood defences unchanged, the financial impact under such conditions might lead to a significant increase of Average Annual Loss (AAL) and losses in shorter return periods while tail losses might decrease. These findings confirm the complexity of the studied phonemana and the need for partnerships and constant development.”