Prominent(re)insurance industry figures have shown a lack of confidence in the commercially available vendor catastrophe models from a climate change perspective. We are seeing similar trends across the wider insurance industry where scrutiny on ESG/sustainability matters are heightened due to the social purpose nature of such institutions. Hiring patterns within the insurance sector reflect an industry which is conscious about the need to assess, monitor and action on ESG related risks on a highly bespoke basis.

Vendor catastrophe models which cater to the reinsurance industry rely on historical data and therefore fail to accurately reflect the rapidly changing physics of climate change seen in recent events. If the insurance industry’s evaluation of climate risk is too conservative, this could lead to businesses exposing more capital.

The first CAT model was created in the 1980s by AIR Worldwide, at a time at which ocean temperatures were almost 1° Celsius cooler than today. While this historical data is of course useful, it clearly shows reinsurers should exercise a greater degree of caution when assessing the appropriate risk to take with regard to the influence of climate change.