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Karen Clark (far right) at the Bermuda Climate Summit.
Based on today's property values and climate science, catastrophe modelling indicates an average insured loss from global weather-related perils of $100 billion a year, according to Karen Clark, founder and CEO of Karen Clark and Co.
Cat modelling is a “global standard” technology for estimating the risk of extreme events, Clark said, and normally they are from natural hazards such as hurricanes, floods, earthquakes, and weather-related perils “definitely dominate”. Catastrophe modellers estimate the financial impact by taking the latest science and building that into their models, not only for today’s risks but also for future projections, she said.
“The models give insurers and reinsurers estimates of how likely they are to have a $100 million loss, a billion-dollar loss, multiple-billion-dollar loss. And so, it's really critical for pricing the risk, underwriting and of course for transferring risk between insurers and reinsurers,” Clark told delegates at the inaugural Bermuda Climate Summit on 25 May.
“In the early days, life was easy because insurance policies are one year in length and, as the job of the catastrophe modeller was to estimate losses for the current year, and because the hazards didn't change that much from year to year, models didn't have to be updated that frequently. But of course now, with climate risk and climate change, that's all changing. And so now, as a catastrophe modelling industry, we need to be on top of, not just what's happening with property exposures, but also of what's happening with the climate.”
Clark was speaking on the panel titled ‘Observations from the cutting edge of climate developments’, alongside Dr. William Curry, president and CEO of the Bermuda Institute of Ocean Sciences; Dr. Mark Guishard, director of the Bermuda Weather Service; Peter Schlosser, vice president and vice provost of Global Futures; and Julie Ann Wrigley of Global Futures Laboratory at Arizona State University. It was moderated by Stephen Weinstein, chairman of the Bermuda Business Development Agency.
Clark said: “And of course, no year is 'average'. Fortunately though, most years are below average, but why $100 billion as the average? Because that number needs to take into account the bad news, like the $150 billion loss we’re going to have when a Cat 4 or Cat 5 hits Miami. A bad year now is when we have multiple $30 billion hurricane losses in the US, and a bad year is going to be more like $250 billion.”
Referring to the global protection gap, she said that insurance covers less than 50% of property damage from catastrophes worldwide.
“The ‘bad year’ for all property damage is going to be about half a trillion dollars”, she said, “and that’s based on today’s climate.”
Karen Clark & Co., Catastrophe Modelling, Climate Change, Insurance, Reinsurance, Karen Clark, Dr. William Curry, Dr. Mark Guishard, Bermuda