Why the (re)insurance industry can't ignore climate tipping points

Authored by Alec Vessey, Senior Analyst, Science & Natural Perils, AXA XL

The (re)insurance industry in conjunction with the scientific community, has been working hard to understand the effects of a changing climate on societies, businesses and individuals around the world. In addition, great efforts are also being made by governments, NGOs, various industries, as well as individuals to research climate change and its impacts, and ultimately mitigate some of the risks to society at large.

Despite greater awareness of many of the risks and consequences, there are some lesser understood climate-change-induced consequences – known as tipping points – that could have devastating and irreversible impacts across the world.

The Intergovernmental Panel on Climate Change (IPCC) (the official UN advisory body on climate change) defines tipping points as “critical thresholds in a (climate) system that, when exceeded, can lead to significant changes in the state of the system, often with the understanding that the change is irreversible (on human timescales)”.

The wider scientific community alongside IPCC have identified several climate-change tipping points, (find out more here Global Tipping Points).  If they were to occur they could lead to:

Sudden and shocking changes in the earth’s system, for example irreversible and significant increases in global sea levels.Accelerated global warming, such as the melting of permafrost and a reduction of Arctic and Antarctic sea ice.Worsening of the impacts of natural catastrophes, for example, changing ocean and meteorological circulations, and rising sea levels compounding storm surge events.

The continued melting of the Greenland ice sheet and the collapse of Antarctic Ice Shelves are two such tipping points and could have devastating and dire financial impact on societies.

These are, at least to some extent, likely to occur by the end of the century if global warming continues and global temperatures reach about 2°C above pre-industrial levels.  The consequences would include significant increases in global sea levels, of up to two metres following the most extreme future temperature scenario, which would inundate low-lying coastal communities and buildings, greatly exacerbating flood risk in coastal areas.

 Melting of Greenland Ice Sheet

Further increases in global surface temperatures are projected to lead to exponential increases in melting of the Greenland Ice Sheet.

The melting ice, unfortunately, results in a negative feedback loop whereby; the more temperatures increase and ice melts, the lower the ‘surface albedo’ – the fraction of sunlight reflected back into space by the ice. The reduced reflectivity of the ice sheet contributes to greater warming in surface temperatures, which results in more ice melting, and so on.

This could result in the runaway melting of ice in Greenland, the Antarctic, and on land, causing more ice to flow into the sea causing exponential increases in global sea levels.

Collapse of Antarctic Ice Shelves

While the melting of the Greenland Ice Sheet is a gradual, but accelerating risk, the collapse of Antarctic Ice Shelves could also lead to an accelerated and significant global sea level rise.

As Antarctic Ice Shelves are undercut by warm ocean currents, they could collapse and break off from Antarctica. These large ice shelves currently help to collect melting Antarctic land ice and prevent this ice from transferring from land into the ocean.

Ice shelf collapse would allow for a greater contribution from melting Antarctic ice (over land) to global sea levels, which in turn would result in a disastrous global sea level rise.

The collapse of the Antarctic Ice Shelves would also be irreversible.

The consequences

To date, while there have been collapsed ice shelves in various places around the globe, these have been relatively small. A notable past example has been the collapse of the Larsen B ice shelf in 2002, where 3,250 km2 of ice, the approximate size of Luxembourg, collapsed into the Ocean.

If larger ice shelves – like Thwaites (similar size as Florida – 192,000 km2), Pine, Haynes, Pope, Smith or Kohler – were to collapse, global sea levels could rise by more than 1.8 metres above pre-industrial levels (IPCC AR6 Summary for Policymakers).

Extreme estimates suggest that the collapse of Antarctic Ice Shelves could cause global sea levels to rise by as much as 2.3 metres by the end of the century, but even the more conservative estimate rise is a cause for concern.

Collapse would result in many coastal areas across the world being inundated, overwhelming coastal properties, resulting in flood damage, and potentially forcing billions of people worldwide to relocate. It would also have an exacerbating effect on short term coastal flooding events like storm surge associated with hurricanes or extratropical storms.

Looking ahead

Efforts are being made to quantify what impact extreme sea-level rises caused by these tipping point scenarios could have.

One recent study (Kulp and Strauss, 2019) suggested an extra 300 million people – the equivalent of the US population – living in coastal areas being at risk of an annual flood event by as soon as 2050. And as many as 630 million people could face that risk by 2100.

Efforts within the AXA XL Science and Natural Perils Team are being made to further this analysis and quantify the value of property at risk to fully understand the financial implications for the (re)insurance industry and society.

One of the biggest challenges is the uncertainty as to when the collapse could occur. Monitoring and modelling tipping points risks is not simple. The harsh conditions in the Antarctic areas make monitoring very difficult, while the uncertainties around timing and scale of these potential events makes modelling even more problematic.

It is certainly the case, however, that as global surface temperatures continue to rise, so too do the likelihood of these tipping points occurring. It is vital that awareness is raised of the impact that these potentially devastating events could have.

Andrew MacFarlane, Head of Climate at AXA XL believes “In a world where climate change impacts are increasingly apparent, at AXA XL we’re using our unique position as a (re)insurer to unlock a more prosperous and sustainable tomorrow by helping businesses navigate climate-related risks worldwide. We know our biggest opportunity for impact lies in reaching our clients with products and service offerings that build resilience and contribute to their decarbonisation journeys. It’s why we’re aiming to shift our investment, insurance and reinsurance portfolios to net zero by 2050 and working with clients to increase their knowledge of climate impacts, risks and transition planning.”

At AXA XL, together with colleagues from the (re)insurance industry and the scientific community, we are working to gain greater insight. Work is carried out both around physical risks, as it is the case of tipping points being reached, as well as transition risks – and opportunities – associated with the transition to a low carbon economy. We are also ensuring that climate and sustainability strategies are integrated into our own business practices and the way we work with our clients and their communities.