Climate Days 6.0: Climate Change and the European Insurance Industry – Evolving Approaches to Risk Quantification

Organised by the EAA – European Actuarial Academy GmbH in cooperation with the Hrvatsko Aktuarsko Drustvo.

The need for novel approaches to measure physical and transitional climate risks is becoming more and more evident as the discussion surrounding climate change and its effects on the European insurance sector develops. In order to handle the complex issues brought on by a fast changing environment, the sector must now adopt cutting-edge models as traditional ways are no longer sufficient.

The Role of Machine Learning in Life Insurance

While the application of machine learning (ML) techniques in the life insurance sector remains in its early stages, this technological advancement holds great promise. Historically, the slow adoption of ML in life insurance has been attributed to several factors, including the limited availability of robust datasets and, to some extent, the lack of formal training for actuaries. In the past, modelling climate data with actuarial data using ML methods was particularly challenging due to both the scarcity and inconsistency of data. For instance, death counts were only available by age bands and gender on a weekly basis in the UK, but not by administrative region, while historical weather series data was available on an hourly basis for ca. 200 weather stations in England and Wales.

That said, the main obstacle is no longer the availability of data, which was once a significant barrier. The emergence of big data and enhanced data-gathering techniques have provided insurance companies with access to more comprehensive datasets. The current challenge lies in effectively integrating ML techniques into the industry's existing frameworks.

Understanding Climate Risks in Insurance

For the insurance industry, climate change poses a diverse array of risks that impact both the asset and liability sides of the balance sheet. These risks are multifaceted and demand a more sophisticated approach to quantification and mitigation.

While the actuarial community develops new ways to measure the economic impact of the risk posed by climate change, it is exceedingly important for actuaries to gain an understanding of how to use climate data, how to bridge the gap between climate models and actuarial projection models and how to produce relevant KPIs. Additionally, how actuaries can leverage new technologies to make more sense of available data in insurance to develop strategies to adapt to the risks posed by climate change.

During our Climate Days 6.0, we will explore the following key topics in depth:

The Impact of Climate Change on Low-Income Populations
What is the disproportionate impact of climate change on low-income populations, and what actions should insurers take to mitigate these risks? Vulnerable communities are often the hardest hit by climate events, and insurers must consider how to provide coverage that addresses this inequality.

Quantifying the Relationship Between Climate Change and Mortality
How does climate change influence mortality rates, and how can the insurance industry capture this relationship effectively? Rising temperatures, shifting humidity patterns, and extreme weather events all have a potential impact on mortality rates, but capturing the ‘signal’ between weather variables and death count or mortality rates remains a challenge.

Machine Learning for Climate Data Modelling
How can machine learning models be used to process and analyse granular climate data? Moreover, how can these models project the future impact of climate change under different emissions scenarios? Accurate forecasting is vital for insurers to understand long-term risks.

Measuring Climate Impact on Asset Portfolios
How can the effect of climate change on an asset portfolio be encapsulated into a single, actionable KPI (Key Performance Indicator)? Insurers need to integrate climate risk into their investment strategies to protect portfolio value in a rapidly changing environment.

Leveraging Large Language Models (LLMs) for ESG Reporting and Climate Stress Testing
How can LLMs, such as GPT, be deployed to summarize critical insights from ESG reports and assist in conducting climate stress tests? These models can quickly synthesize vast amounts of unstructured information, offering insurers a powerful tool for risk management.

Natural Language Processing (NLP) for Climate Risk Sentiment Analysis
How can NLP strategies be applied to develop a sentiment index tracker that monitors climate risk based on news feeds, ESG reports, and other available data sources? This could help insurers remain agile and responsive to changing risk landscapes.

The Impact of Shifting Ecological Conditions on Disease Transmission
How are shifting ecological conditions, driven by climate change, altering the transmission dynamics of diseases? What potential does this have for larger outbreaks and the emergence of new disease hotspots, and how can governments, and also insurers prepare for this emerging risk?

Abdal Chaudhry is Senior Director of Group Actuarial Reporting at Athora, with over 15 years of experience in the life insurance industry. In the recent years, Abdal has conducted research into the use of machine learning techniques to enhance climate data, improve future climate model projections and to estimate the impact of climate change on insurance risks.

Adel Cherchali leads the AI Lab at Milliman in Paris, where his current research focuses on the application of Generative AI and computer vision for insurance companies. He holds a PhD in the development of efficient numerical methods for computing Solvency Capital Requirements within Internal Models in Life Insurance. Throughout his career, Adel has applied his modelling expertise to various client projects, including the implementation and review of proxy modelling tools as well as risk-neutral and real-world scenario generators. In addition to his professional work, he lectures at Paris Dauphine University and frequently speaks at international conferences.

Dr Marta Giovanetti’s research focuses on understanding gene flow patterns in pathogen populations, utilizing phylogenetics and phylogeography to investigate viral outbreaks and inform public policy. Marta specializes in recent arboviral outbreaks in Latin America (Zika, Chikungunya, Dengue, Yellow Fever) and SARS-CoV-2 in Brazil, Italy, and South Africa, integrating genetic, spatial, and ecological data. With a PhD in molecular evolution of RNA viruses and fieldwork on Ebola, she currently holds positions in Brazil and Italy. In collaboration with Brazil’s Ministry of Health and the Pan-American Health Organization (PAHO), Marta works on enhancing genomic surveillance for viral pathogens using nanopore sequencing, having generated over 100,000 viral genomes. Marta has also co-founded CLIMADE, a global consortium aiming to mitigate climate-amplified diseases.

Dr Michael Leitschkis is Group Chief Actuary at Athora with over 20 years of experience working in the life insurance industry. He is a member of the German Actuarial Association’s working party on Climate Scenarios. Michael has authored numerous publications and spoken at various EAA seminars and web sessions on modelling in general and climate modelling in particular. He has been teaching risk taxonomy and risk modelling as part of the EAA’s CERA working party since 2011.

Michael J McCord is one of the world’s leading experts in developing and managing microinsurance products. His decades of experience include working as controller of a U.S. commercial bank, chief executive officer of a microfinance institution in Uganda, and regional director for microfinance programs in Africa with FINCA International. In 2000, Michael founded the Microinsurance Centre, now MIC@M, part of Milliman. The MIC@M’s vision is to provide three billion low-income people across the world with access to valuable microinsurance and risk management solutions. Michael is a founding member of the Microinsurance Network, and a member of the steering committee for the Munich Re Foundation / Microinsurance Network annual conference on inclusive insurance.