The impact of climate change should be fully incorporated into catastrophe models in the future says Lloyd’s.
Lloyd's said in a report titled ‘Catastrophe Modelling and Climate Change’ that the obvious existence of climate change and the effect that it is having globally should persuade the insurance industry and catastrophe modellers to include factors such as rising sea levels and rising air temperatures throughout their models.
Lloyd’s commented that climate change may be implicitly built into catastrophe models given the heavy use of historical data in existing models, but that these trends were not necessarily explicitly incorporated into modelling output.
The report found that climate change has the potential to affect extreme weather which subsequently impacted Lloyd’s underwriting.
Lloyd’s stated that a rise in sea levels increased losses associated with Superstorm Sandy by 30% in New York alone and that storm surges of over 5m were a major factor in the damage caused by Typhoon Haiyan in the Philippines last year.
The report also found that frequency of extreme weather had increased around the globe.
“Climate change is a reality and the vast majority of scientific research concludes that it is being driven by human activity,” said John Nelson chairman of Lloyd’s. “Whilst some debate still remains as to the extent of climate change, the evidence points to it leading to more extreme weather events.
“Catastrophe models are what the insurance and other industries use to quantify our understanding of the natural world and predict the impact of the weather.
“We need to be able to model and understand these events better, and help mitigate the impact climate change is having on communities and businesses” Nelson said.