Summary of this Deep Dive:
This video discusses a 2024 report titled Climate Scorpion, a collaborative effort between the Institute and Faculty of Actuaries (IFoA) and the University of Exeter. The report examines how the insurance and risk assessment industries are re-evaluating their models in light of accelerating climate change.
Key Takeaways:
- Shifting Risk Curves: The video uses an infographic (0:51) to explain how weather event distributions have changed. A "century storm"—previously a rare, low-probability, high-severity event—is now becoming a standard expectation for annual occurrences (2:40-3:00).
- The "Sting" of Climate Change: The report highlights that global warming is driving more frequent and severe weather, such as floods and hurricanes. This is caused by increased thermal energy in the oceans converting into kinetic energy (0:35-0:53).
- Insurers Reassessing Models: The insurance industry is warning itself that historical models used to calculate risks and premiums are no longer accurate because the Earth is warming faster than previously anticipated (4:00-4:20).
- Beyond Insurance: This is a broad systemic issue. Accurate risk assessment is a critical tool for the entire private sector to determine policy, business operations, and financial stability (4:55-5:06).
Ultimately, the report serves as a warning that what were once considered "disaster movie" scenarios are moving toward becoming the new normal (3:06-3:30).
Transcript of this Deep Dive:
Today we're taking a look at this report from the Institute and Faculty of Actuaries from the University of Exiter. They've been reporting on this concept called planetary solvency. And this report here, the climate scorpion, it holds, I think, one of the most important infographics to help us understand the consequences of climate change. So essentially what this is is a graph of the probability and strength of flooding events. Floods are one of the many types of weather events that happen more severely and more frequently because of climate change. And that has to do with there being heat energy coming from the sun warming the ocean. And that warming turning into kinetic energy, which means things moving around, including things like typhoons, hurricanes, tornadoes, all of that So essentially what this blue line says is here's the distribution of the strength of storms in 1980 and the yellow line is the same thing for 2030. So on average, this is a bell curve. It just talks about the fact that on average most storms most years are going to be about medium strength. Pretty tautological statement. Uh some years you're going to have very light storms. Other years you're going to have crazy heavy storms. Remember Hurricane Sandy right? Once in a lifetime. Yeah. Hopefully. So in 1980, a really strong event would call we, you know, a century storm would be right in this tail end of the probability curve. That's the the tail from uh the climate scorpion. The tail of the scorpion is when once in a while we get stung by extra severe weather. It doesn't happen often. low probability but very high strength, very high severity on this uh horizontal axis. Now the problem is as climate change continues to get worse, we have stronger and stronger storms on average. See, the whole bell kind of shifts over to the right, increasing in severity, which means the tail end of the curve when the really heavy storms hit are themselves heavier than what we used to think was even really So, Tai, the under the 1980 blue line, the severity of floods, the sort of the worst once in a-lifetime or once in a century floods, why is that just directly underneath the yellow line, which is sort of more common place now? Is that is that a bad thing? Well, it basically means that what we used to call a century storm is now what you're going to have to basically expect every year in terms of floods and again hurricanes, tornadoes, everything else. So, the severity has shifted so much that what we used to consider worthy of a disaster movie is now just slightly stronger than an average year. And what will happen occasionally, the century storm of 2030 and beyond, is entire cities wiped out, huge flooding events, uh really severe, something from a modern disaster movie. It's not exactly a day after tomorrow, but it is something so severe that the people in charge of risk assessment for the entire world, the people who train actuaries, risk assessors, uh, investment and insurance brokers on how to understand risk for the private sector. They're saying that what we had to call a century storm before is basically going to be standard expectations yearly. now and what we have to expect as a century storm now is the types of events that we hoped we'd So this is the insurance industry talking about this and writing about this and warning itself that the old models that they were using to assess risk and to charge premiums. They're warning themselves that those old models They might not be accurate and they may Yeah. Yeah. And this is why you have uh reinsurance insurance for insurance companies. They're having to figure out how much we have to pay someone else to couch our risks that so that we can continue to couch everyone else's risks of in this case floods. And the insurance industry is warning themselves saying, "Hey, this could be a lot worse because the world is heating up faster than we thought it would and bad things are almost guaranteed to at this point. And it's not just insurance. All across the private sector, risk assessment is a critical tool for understanding how to operate your businesses and how to set policies. So this is this affects So Ty, if the insurance company is thinking about this and teaching themselves this and writing about it in public, then if they're worried about climate change, then perhaps the last few people who still don't believe in climate change, perhaps they should read If you don't believe in climate change, just wait for one of these century storms to hit your neighborhood and then Very nicely said. Thank you, Ty. Thank you, Greg. And thanks all of you
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