Customers in the reinsurance industry are learning to identify and deal with the effects of climate change. As a result, risk management is entering a new phase that necessitates learning and adjusting to novel practices. There's also a sense of urgency because reinsurers are under increasing scrutiny to show that they're keeping tabs on their risks and acting responsibly.

Are reinsurers faring in the face of the threat posed by global warming? Huge differences exist. Some insurance clientele has made substantial headway and want assistance forming its overall direction and initial steps. However, most consumers are optimistic and committed to incorporating climate resilience into their operations.

Reinsurers are gaining confidence in their ability to assess global warming risk and are reevaluating the long-held position of climate risk specialists, both of which are contributing to the industry's rapid expansion. The need for people with these abilities is well-known in the business. They can translate risks to monetary losses and price uncertainty and persuade various stakeholders to take preventative measures.

Insights from clients

Understand first that "climate change risk" encompasses a wide range of potential outcomes. Therefore, it's important to focus on the scope of climate change risks. For example, do you mean future climate change or climate change that has already occurred? Since quantifying the effects of climate change thus far has been challenging, it is essential to make this distinction.

Some reinsurance firms have attempted to incorporate climate change risk into their current estimations. However, separating the effects of human-caused climate change from those of other natural climatic variations, especially for unusual or extreme weather events, is difficult. Therefore there is a great deal of uncertainty around past climate shifts. So instead, customers are utilizing estimates of the future to inform how they think about the climate now.

Second, customers prefer not to be limited to "single-use" perspectives on risk, such as those developed for compliance with regulations. They hope for adaptability in the short term and in the hypothetical five to ten-year time frame. Regulatory and policymakers benefit more from long-term projections of climate change impacts than reinsurers. To keep up with the fast ever-evolving regulatory landscape, RMS climate change designs are made to support various use cases today and in the future.

Third, even if your company knows the science behind climate risk, how can that knowledge be integrated into the resources already in place and used to inform decision-making networks? Unfortunately, many recent products on the market have a firm grasp of science and risk. Still, they are clueless about the loss that results, and others have a peripheral understanding of climate change and offer no new insights or tools.

Climate change models are helpful for clients because they provide information from basic science to financial loss for a given exposure, using metrics compatible with existing procedures. However, with climate change risk data and models maturing, adaptability, integration, and industry standardization are becoming increasingly critical.