An Actuary Looks at Climate Change

A personal reflection on how more frequent extreme weather events affect our planet

Rebecca Owen March 2021

Photo: iStock.com/traffic_analyzer

On a recent cold, raw afternoon, I walked the banks of the Yachats River with an Oregon Department of Fish and Wildlife representative to look at the devastation wrought by a spate of unusually ferocious winter storms. Wild winds and an atmospheric river had met with high surf and the annual king tides to push the waters to historic high levels, but the damage was made worse by the inordinate amount of downed trees that gouged and scarred the river’s banks. This loss of timber was a result of a spate of severe windstorms in the fall that tore through the coastal range, leaving behind a swathe of downed trees, unstable hillsides, power outages and property damage. The trees were more vulnerable than usual because of an unusually hot and dry late summer, which culminated in an unexpected, searing, scouring eastern wind that brought with it thick smoke and ash from the infernos in the Cascade Mountains, tearing down trees, sparking local fires and leaving choking residents clutching go bags.

Figures 1 and 2 give a visual and numerical idea of the conditions in September 2020.

Figure 1: Satellite Image of the Unusual Eastern Wind That Smothered the Northwest United States in Smoke, September 2020

Source: Satellite image courtesy of NASA

Figure 2: Fine Particulate Measures (PM2.5) on the U.S. West Coast, September 2020

Note: Yachats, Oregon, had a maximum of 750 at one point—above 300 is considered hazardous to health.

Source: Image courtesy of Purple Air Real Time Air Quality Map

This part of the West Coast, where residents delight in the vagaries of weather, is now distraught as they contemplate the direction climate change is taking us. Even the chorus of people describing the 1962 Columbus Day Storm that usually accompanies any grumbling about the weather was muffled as each month in 2020 brought more destruction.

We had it easy.

All around us, there are stories of severe weather and comments about the frequency—or rarity—of a given event. Australia marked its driest and hottest year on record at the end of the summer season in 2020. The California wildfire season was the worst on record, in part a result of unusually hot, dry conditions. There were mudslides in Italy, tropical storms in the Philippines, heavy snow in Madrid and hurricanes that battered the Caribbean. There was the bending of the arctic vortex to bring cold and snow to the Northeast and Texas while at the same time record-warm temperatures were recorded in the Arctic and Antarctic, which left open patches of sea. Daylight flooding in Miami has become a regular occurrence, not to mention the flooded fields and lost crops of the Grain Belt, and active tornado seasons and dust storms startled the Midwest.

In this litany of weather news, we know lives have been lost and buildings and infrastructure destroyed. We are watching the footage and reading the headlines, and perhaps we have even experienced these stories personally and professionally.

Climate Change and the Actuarial Profession

The actuarial profession will be impacted by these events in ways that vary by practice. It is perhaps easiest to see how they will affect property and casualty insurance (P&C) because the pictures document the visible damage. But health actuaries also have direct experience with the outcomes of weather events, from hospital use during heat events to smoke inhalation treatment during fires or the more indirect, but still substantial, impact on mental health. Perhaps the direct connection to life, retirement investments and reinsurance is not as easy to measure for each event—but that does not mean there is no impact. These weather events have immediate and lasting consequences.

To those actuaries who do not want to think about the label “climate change,” I would say: Suppose we do not talk about climate change but instead talk about modeling the increase in frequency and severity of weather events, their distribution and their impact on the risks we monitor. These numbers are factual and historical, and we can build reports based on claims history. But that really isn’t our job, is it? Our job is to make projections, identify and quantify risk, and build in estimates of what is needed to protect the financial viability of our principals.

What do we project then? Do we project based on the trajectory? For how long? If we were to add in a flattening of the curve, what would justify that? There would need to be some sort of change—an intervention, perhaps, or a fortuitous end to the increases (or as 2020 has demonstrated, an unfortunate intervention that brought economic activity to a standstill).

Interventions work if the trajectory has a systemic basis that can be addressed by some change. The actuarial standards of practice on modeling do not address serendipitous ends to longstanding trends, so we do not want to project a lucky end to the upward curve. This means that if we are going to project mitigation in the observed trends due to interventions or systematic changes, we need to provide substantive reasons for improvement—meaning we must accept the reality of climate change.

If we cannot identify effective mitigation, we must accept the continued trajectory and understand both the episodic (event-driven) and continual (baseline) changes in the nature and extent of the manifestations of the warming climate. In any case, actuaries should include climate change in our list of factors that contribute to the frequency and severity of the events we monitor—perhaps just as a holder while we try to assign appropriate values.

Climate Change Resources

There is so much documentation for actuaries to consider when trying to quantify the extent and nature of the impact of climate change, not just from external sources but from within the profession. Actuaries should familiarize themselves with this rich and varied trove of information. Here are a few resources to introduce the topic.

The Actuaries Climate Index, updated in December 2020, is a great resource. It has a long view of several characteristics of interest to actuaries. Looking at Figure 3 makes it hard to deny the long-term nature of the changes.

Figure 3: Actuaries Climate Index—the United States and Canada

Source: Actuaries Climate Index

Two other good sources of information that demonstrate the extent and impact of climate change are the series of reports produced by the Intergovernmental Panel on Climate Change and the National Climate Assessments produced by the U.S. Global Change Research Program. These sources, and so, so many others, have links to the studies and documentation that underly the news stories we read on a regular basis. If actuaries really want to understand climate change risk, they should read the science and think about how the results translate to our sphere of interest.

Disproportionate Impacts

One thing that crosses from professional to personal is the understanding that the impacts of climate change, especially those that are not explicitly financial, are deeply unfair. As the world heats up, people in poor and marginalized communities, with limited access to shade, air conditioning and water, suffer disproportionately—and this includes areas of the United States.

The more people and the other species that share our planet are inhibited from moving to more salubrious climates, the more devastating the impacts. A good read on this topic was published in The New York Times in December 2020. The toll of climate change on the world’s wildlife is widespread and well documented. The World Wildlife Fund (WWF) estimates most species would need to move 1,000 meters/year to stay within their climate zone. For many species in islanded populations, there is no place to go, so population decline or even extinction loom.

This may seem to be a marginal issue for actuaries to think about; after all, what good are salamanders to our work? This is a hubris-ridden, anthropocentric frame of mind because, really, we don’t know the answer.

As an actuary, I can see that as the situation becomes more widespread and pronounced, it will be harder to simply turn on the air conditioning in our offices and ignore what is happening to the world around us. Increased morbidity and mortality manifest in heat events; respiratory and cardiac disease both worsen in fires; mental health crises follow severe storms, and these all have financial consequences. Food insecurity, even in developed countries, becomes a tangible possibility. At the same time, the media will continue to document the migration of people away from economically and politically unstable parts of the world—often directly and indirectly driven by climate impacts—and the humanitarian aspect must call to our better natures.

It is not yet clear what the impact of the continuing loss of plant and animal species will be on humans. For me, biodiversity is one of the great joys of living on this earth. At the risk of sounding like one of the older residents of my town, I remember a richer earth. I can see, smell and hear the loss of species, and I grieve.

Rebecca Owen, FSA, FCA, MAAA, is a consulting actuary with HealthCare Analytical Solutions, Inc.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.