Climate Risk—An Overview

January 9, 2020 Aaron Helmbrecht

Climate Risk—An Overview


Many Americans have felt keenly the effects of extreme climatic events: increased droughts in the western United States, higher rainfall and snowfall in the eastern part of the country, and greater damage from tornadoes, hurricanes, floods, and wildfires.

Questions to consider:

  • Do the candidates have positions on climate risk?
  • Do the candidates have proposals to change or update the National Flood Insurance Program?

While climate scientists continue to refine their models, most data shows record-breaking warm temperatures in many parts of the world over the past several years. Acknowledging that the public debate on climate risk has often been contentious, the American Academy of Actuaries encourages the public to inform itself with objective information and data to more fully engage in the debate. This brief guide to climate risk issues is offered to voters to help explain the growing costs and consequences of weather-related damages and thereby help them to better understand the positions of candidates during the 2020 election campaigns.

Global Natural Loss Events (2018)
Number of Events 850
Overall Losses $160 billion
Insured Losses $80 billion
Fatalities 10,400
Source: Munich Re
Largest Storm Losses (2018)
Michael $25 billion
Florence $25 billion
Colorado Hail $2 billion
Source: NOAA

Source: NOAA

Writing on the World Economic Forum’s website, Alison Martin of the Zurich Insurance Group noted that, “September 2017 was the most intense month on record for extreme weather events, as well as the most expensive US hurricane season since 2005 with economic losses in excess of $300 billion. And the US was not alone in experiencing extreme weather: Ireland, for example, had its worst tropical storm in more than 50 years.”[1]

In 2018, the U.S. experienced 14 weather and climate disasters, each with losses exceeding $1 billion and all totaling around $91 billion in damages. Both the number of events and their cumulative cost ranked fourth highest since records began in 1980.[2]​

NOAA: Key U.S. National Climate Assessment Findings

  • Global climate is changing; this is apparent across the United States in a wide range of observations.
  • Impacts related to climate risk are already evident in many sectors and are expected to become increasingly disruptive across the nation throughout this century and beyond.
  • Climate-related extremes threaten human health and well-being in many ways, including through more extreme weather events and wildfire, decreased air quality, and diseases transmitted by insects, food, and water.
  • Infrastructure is being damaged by sea level rise, heavy downpours, and extreme heat; damages are projected to increase with these continued climate trends.
  • Water quality and water supply reliability are jeopardized by climate change in a variety of ways that affect ecosystems and livelihoods.
  • Climate disruptions to agriculture have been increasing and are projected to become more severe over this century.
  • Ocean waters are becoming warmer and more acidic, broadly affecting ocean circulation, chemistry, ecosystems, and marine life.[3]

Actuaries Climate Index and Actuaries Climate Risk Index

In order to monitor changes in climate risks, the American Academy of Actuaries has joined with other North American actuarial organizations to develop the Actuaries Climate Index (ACI), which focuses on measuring the frequency and intensity of extremes in key climate indicators based on controlled observational data of temperature, precipitation, drought, wind, and sea level. The ACI covers the United States and Canada, with capability to display data by region.

This year, the Academy released a companion tool to the ACI—the Actuaries Climate Risk Index (ACRI). It assesses who and what is at risk because of climate change, and quantifies that risk according to the indicators of the ACI. The ACRI references where people live and the surrounding infrastructure and looks for relationships between climatic and socioeconomic factors.

Both indices are useful tools for actuaries, policymakers, and the general public.

National Flood Insurance Program (NFIP)

As floods become more prevalent and costly, there are a number of important legislative reforms that can be done to aid flood risk assessment and mitigation and help address the NFIP’s sustainability.

Provisions in any legislation should encourage sharing of historical flood loss data with private insurers, growth of the private flood insurance market, and modernization of flood mapping—all of which are potential reforms that the Academy has raised with congressional offices. Other areas for reform identified by the Academy include:

  • Addressing the NFIP’s debt, which is over $20 billion, and making it sustainable going forward, factoring in possibilities of future large losses from megastorms.
  • Avoiding artificial pricing disparities that could arise due to debt and flood mapping surcharges imposed on NFIP policies but not on private insurance coverage.
  • Focusing more attention on repetitive-loss properties to reduce overall losses in the program.
  • Providing additional funding for pre-flood mitigation efforts.
  • Taking into account rising sea level and its likely financial impact on the NFIP.

In 2019, the Academy’s Extreme Events Committee published an updated comprehensive public policy report, The National Flood Insurance Program: Challenges and Solutions. It is available on the Academy website at

[1] Alison Martin (Zurich Insurance Group), “Climate and tech pose the biggest risks to our world in 2018,” Jan. 17, 2018.

[2] National Oceanic and Atmospheric Administration “2018 was 4th hottest year on record for the globe,” Feb. 6, 2019.

[3] National Oceanic and Atmospheric Administration, “New federal climate assessment for U.S. released,” Nov. 23, 2018.