Earth, wind and fire: how insurers can tackle climate change
Environmental Charity ClientEarth shared that the climate crisis is the greatest challenge facing humanity and threatens the future of life on our planet. An average increase of 1.5°C already risks sea level rises, extreme weather, loss of species and inhabitants, food scarcity etc. 90% of the world’s coral reefs are at risk from warming oceans. 259 billion tons of ice were lost from Greenland between 1993 and 2016. 20 million people a year are forced out of their homes due to climate change. With risks related to climate change and extreme weather events increasing, insurers and insurtechs should take note and find ways to help their customers mitigate the effects. ITC DIA Europe Barcelona, talk show host Sabine Vanderlinden, explored innovations in insurance products and services that promote climate adaptation and mitigation.
In short: how can insurance tackle climate change? Participants that joined the conversation were Sidhanth Kamath, Partner at McKinsey & Company, Silvia Savini, Co-Founder at Swiss Insurtech Hub, Alex Taylor, Head of Emerging Technology, QBE Ventures and Luis Sousa, Risk and Partnerships Lead at Mitiga Solutions. We sat down with Luis from Mitiga Solutions, to talk about his contribution to the Talk Show, focusing on climate models, measuring instruments and spatial resolutions.
Luis, how does Mitiga Solutions use data to help insurers do better risk assertions related to climate change?
Luis: “We like to call ourselves a climate tech company. We focus on helping our clients in the insurance and reinsurance space understand how climate change and climate variability have an impact on extreme weather and geophysical events, because this has an enormous impact on risk and asset protection. In terms of data gaps, we need to separate the problem into two levels. First, climate modelling and climate science, both involve lots of data. The issue is more about understanding how to make sense of all of this science and knowledge data and distil it in a way that we canprovide something that makes sense to the customer. Unfortunately, most climate models, which have 100-50 km resolution, don’t allow you to go to the level of spatial resolution that you need to assess the hazard and risk of your property, which is around 100m.
The second problem is data-poor countries and regions, which often don’t have data to validate your models. To attack this problem, we’re mainly leveraging physics-based modelling. This way, we are able to use the spatial resolution of the climate model and extend those analyses, while continuing to account for the physics of the processes we’re trying to assess. Take wildfires for example: what are the drivers of wildfire activity? These are atmospheric conditions, wind conditions, and the conditions on the ground. From a physics-based point of view, we translate these variables and simulate and estimate what’s the hazard and risk for that property.
So it’s a combination of physics-based modelling, AI and a lot of high-performance computing, which we can leverage because we are a spinoff from the Barcelona Supercomputing Center and we also have an active partnership with Microsoft.”
Can you elaborate more on these high-resolution models that you’re building? How far are we from the physical asset?
Luis: “We focus mainly on what people still call “secondary perils”, meaning wildfire and generally extreme weather such as wind, extreme precipitation, drought and extreme temperature. And just to give you the example of wildfire, we can go up to a 30-meter resolution. 30 meters is where we see a good trade-off between the resolution of the data, the results that you need to do a good enough job and the compromise with respect to the computational costs that it takes to get to that resolution. For floods it makes sense to go to a type of resolution meant for less localized perils – it all depends on the use case. The tools we built at Mitiga Solutions, allow us to go as far as necessary.
All the state-of-the-art climate models are physics-based, but how you go from there to the asset level, that’s where approaches differ. There are statistical-based approaches that you can use to still go to the 30-meter resolution. But the issue when you go from climate model level data to asset-level data using statistical-based approaches is that you’re actually losing information. By using a physics-based approach, you actually don’t lose information. You’re just adding information to the system.”
What are your recommendations for insurers and their partners to be more successful?
Luis: “I think it’s about shifting the focus from just responding and rebuilding to actually promoting and rewarding resilience. If there’s no loss, there’s no cost and when there’s no cost, there’s no rebuilding, there’s no carbon associated. There’s already a push to move in this direction. In the conversations we have with different insurance and reinsurance players, we see them moving into this spac,e also pushed by legislative and regulatory measures that are being taken in the European Union, specifically with the EU taxonomy that is pushing for resilient insurance. So we already started seeing a push and move in that direction.”
Who is Mitiga Solutions?
Mitiga Solutions believes in leveraging science and technology for the greater good. Its mission is to make the world a more resilient place under a changing climate.
Mitiga started as a spin-off from the National Supercomputing Center in Spain, which hosts MareNostrum, one of the most powerful supercomputers in Europe. From there, it set out to bridge the gap between boundary-pushing science and forward-looking businesses.