AIR Worldwide, the Met Office, and the Association of British Insurers Collaborate to Examine the Financial Implications of Climate Change

BOSTON, Nov. 5, 2009 – Catastrophe risk modeling firm AIR Worldwide (AIR), today announced the results of its collaboration with the U.K. Met Office to examine the financial implications of climate change to the insurance industry. The analysis was sponsored by the Association of British Insurers (ABI) in a special report titled, “Financial Risks of Climate Change,” which was released Wednesday at an ABI conference in London.

“While there is significant uncertainty associated with the future of earth’s climate, due diligence requires that we explore the possible financial impacts of rising global temperatures, thus allowing stakeholders to make rational decisions about if and when to take action,” said Nick Starling, ABI’s director of General Insurance and Health. “With the help of AIR’s catastrophe modeling expertise and the Met Office’s expertise in climate modeling, this groundbreaking study quantifies the effects of a changing climate on insured risks from two dominant natural hazards in the U.K. – namely, inland flooding and winter windstorms – and from typhoon activity in China, accounting for some of the uncertainties surrounding the impacts of climate.”

Results from the study include:

  • The average annual insured inland flood losses in Great Britain could rise by 14 percent assuming a global temperature rise of 4�C. Within Great Britain, the results vary by region (increases range from less than 10 percent to nearly 30 percent).
  • The insured inland flood loss in Great Britain occurring on average once every 100 years could rise by 30 percent. The insured inland flood loss occurring on average once every 200 years could rise by 32 percent. In both cases, the estimates assume a global temperature rise of 4�C.
  • The average annual insured losses from typhoons affecting China could increase by 32 percent; the 100-year loss could increase by 9 percent, and the 200-year loss could increase by 17 percent. In all cases, the estimates assume a global temperature rise of 4�C.

Matt Huddleston, Met Office principle climate change consultant said, “The Met Office created a series of climate scenarios based on the current state-of-the-art climate model output and expert analysis of published scientific research and data. These climate scenarios were then used by AIR Worldwide to condition their existing catastrophe models, providing a unique insight into relationships between climate change and potential financial risk impacts.”

Since they were first introduced by AIR in the 1980s, catastrophe models have been used by insurers, reinsurers, governments, investors, and others to quantify the financial impact of extreme events and support risk management decision making. To assess the financial impact of climate change in the U.K. and China, AIR Worldwide modified the assumptions underlying three of its catastrophe models – the AIR Inland Flood Model for Great Britain, the AIR Extratropical Cyclone (Winter Storm) Model for Europe, and the AIR Typhoon Model for China – using the climate scenarios provided by the Met Office as input in place of today’s climate conditions.

“The earth’s climate system is constantly changing,” said Dr. Peter Dailey, assistant vice president and director of atmospheric science at AIR Worldwide. “Not only does a change to any component of the system influence the risk from natural catastrophes, but the interactions between components bring about an inherent uncertainty surrounding how climate will evolve in the future. By conditioning our models on future climate scenarios developed by leading climate researchers at the Met Office, the study we have conducted on behalf of the ABI advances our understanding of the relationship between these complex climate relationships and insured risk.”

“Our research team has once again extended the state of the science by coupling climate model projections with state-of-the-art catastrophe models,” said Ming Lee, president & CEO, AIR Worldwide. “The results of this collaborative endeavor provide the insurance industry for the first time with a quantification of the potential impact of climate on insured risks in the U.K. and China.”

About AIR Worldwide

AIR Worldwide (AIR) is the scientific leader and most respected provider of risk modeling software and consulting services. AIR founded the catastrophe modeling industry in 1987 and today models the risk from natural catastrophes and terrorism in more than 50 countries. More than 400 insurance, reinsurance, financial, corporate and government clients rely on AIR software and services for catastrophe risk management, insurance-linked securities, detailed site-specific wind and seismic engineering analyses, agricultural risk management, and property replacement cost valuation. AIR is a member of the ISO family of companies and is headquartered in Boston with additional offices in North America, Europe and Asia. For more information, please visit