Climate is 'operating on steroids'

by Resolve Editor Kate Tilley

“We can’t stop climate change, but we can control how bad it will be in the future.”

That was the grim warning from Professor Andy Pitman, Director of the ARC Centre of Excellence for Climate Extremes at the University of NSW, who spoke at the AILA National Conference.

Prof Pitman was a panellist with Tom Harvey, Senior Property Treaty Underwriter at Scor Re, and Scott Reeves, Head of New Markets with Munich Re.

Prof Pitman said 10 billion tonnes of carbon was emitted into the atmosphere each year. Carbon dioxide started increasing in the atmosphere with the Industrial Revolution because of burning fossil fuels, increased land clearing, intensive agriculture and industrial activity.

“It’s an astronomical amount of energy being added into the atmosphere. With more energy in the climate system, it must do work, therefore it raises temperatures.”

He said there were so many unprecedented events that it was “clear the climate is operating on steroids”.

Heat waves are hotter

Prof Pitman said a 1degC rise was “not a small number”. In Australia, both average and maximum temperatures were rising. “Heatwaves are getting hotter, longer and more frequent.” It required a heatwave to extend only a few additional days for it to kill people.

He said climate change’s impact on rainfall was less clear. The number of wet days was decreasing over time. Intense rainfall was becoming less common, but more intense.

There were fewer cyclones but they were increasing in intensity. For hailstorms, developing trends were unclear. Fire risk was increasing because of higher fuel loads and the atmosphere’s demand for moisture.

Climate scientists used tools like the NSW/ACT Regional Climate Modelling project (NARCliM), a NSW Government-led initiative that generates detailed climate projections and data for NSW, to assist in their predictions.

However, a key issue in modelling was that “accuracy and precision are different”. “Models can be precise but not necessarily accurate.”

Prof Pitman advised using historical data with care. “We know the direction of temperature, but not necessarily hail and cyclones. We must embrace uncertainty.”

He warned that climate scientists project climate, but most insurable risks are about weather not climate. “The weather will change as the climate changes.”

Data value diminishes

Mr Reeves agreed the value of data diminished over time so events like Cyclone Larry, which hit north Queensland in 2006, were no longer very relevant.

Mr Harvey said examining historical events didn’t consider ramifications of changes to building codes and inflationary pressures, so were not necessarily good predictors for the future.

He suggested good ESG risks were not necessarily “better” risks, because there were complex and diverse flow-on effects. “If an insurer commits to net zero by 2050” and therefore exits the thermal coal sector, “they reduce greenhouse gas emissions, but where does it lead?” Thermal coal assets may get stranded and a huge amount of premium was not replaceable.

Mr Harvey said insurers could provide discounts for solar panels, but they tended to be installed in higher-income homes and could be damaged in storms. Electric vehicles were likely a higher cost for insurers because it was harder to source replacement parts and service networks were less established.

“The reputation risks [in managing climate change impacts] are huge. You will upset someone if you act too quickly or too slowly.”

Net Zero Insurance Alliance

Mr Reeves said the United Nations-convened Net Zero Insurance Alliance (NZIA), of which Munich Re was a founding member, is a good initiative. NZIA is a group of more than 20 insurers that have committed to transition their underwriting portfolios to net-zero greenhouse gas emissions by 2050. But there was “a lack of definition on how [insurers] account for the path to get there”.

However, Mr Reeves said first movers had an advantage. Insurers needed to transition risk, because those that remained stagnant would experience “doom and gloom”.

Mr Harvey said climate change meant increased regulation and uncertainty, but “insurers are in the business of calculating physical risk and converting it to financial risk and must get their heads around it”.

Prof Pitman said insurers were “at the coal face” and insurance was “a mature industry that lives and breathes risk, therefore [insurers] should understand it”.