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Assessment of climate change risk to the insurance sector

From Dr. Judith Curry’s Climate Etc.

by Judith Curry

The insurance sector is abuzz with a brand new report from AIR Worldwide on the insurance risk from the impression of climate change on hurricanes.  Insurance trade purchasers of my firm, Climate Forecast Applications Network (CFAN), have requested a critique of this report.

AIR Worldwide, a revered disaster risk modeling and consulting firm, has lately revealed a report Quantifying the Impact from Climate Change on Hurricane Risk.  AIR’s evaluation has three parts:

  • Hazard part (relates to the frequency and depth of occasions)
  • Engineering part (relates to bodily belongings at risk)
  • Financial part (relates to financial losses)

The AIR Report purports to “capture the full range of plausible events that could impact an area.”

My critique focuses solely on the hazard part. A abstract of my evaluation is offered beneath:

  1. The driver for AIR’s evaluation is warming related to the emissions/focus state of affairs RCP8.5, which AIR refers to as a ‘business as usual scenario.’  In truth, RCP8.5 is more and more being judged as implausible by vitality economists, and isn’t really useful to be used in coverage planning.
  2. The hurricane risk from climate change focuses on the quantity and depth of U.S. landfalls in a altering climate.  Their state of affairs of the quantity of main hurricanes placing the U.S. by 2050 is judged to be implausible for medium emissions situations corresponding to RCP4.5.
  3. The sea stage situations utilized in the AIR Report are greater than the latest IPCC consensus assessments and are arguably implausible for medium emissions situations.
  4. The AIR Report ignores the ‘elephant in the room’ that’s of relevance to their goal interval to 2050: the Atlantic Multi-decadal Oscillation (AMO). A shift to the cool part of the AMO would arguably portend fewer main hurricanes placing the U.S.

For reference on the matters of hurricanes, sea stage and climate change, see these experiences lately revealed by CFAN:

  • Special Report on Sea Level and Climate Change  [Download Report]
  • Special Report on Hurricanes and Climate Change


When contemplating situations of future climate change, there’s a lot scope for uncertainty. Plausible outcomes (particularly on the excessive finish) are weakly constrained and there’s a lot disagreement amongst specialists as to the possible vary of outcomes (67% probability).

Outcomes of future climate change are related to deep uncertainty [for further context, see my paper on Climate Uncertainty and Risk].  Under circumstances of deep uncertainty, possibilities of outcomes usually are not very significant. At finest, we will hope to plausibly  sure the vary of outcomes.  The IPCC seeks to sure the possible vary [67%] of outcomes.

While specialists will inevitably disagree on what constitutes a believable finest or worst case state of affairs when the data base is unsure, I’ve developed a classification  primarily based on the extent to which borderline inconceivable parameters or inputs are employed in creating the state of affairs [see my essay What’s the worst case?]. This classification is impressed by the Queen in Alice in Wonderland: “Why, sometimes I’ve believed as many as six impossible things before breakfast.” This classification articulates three classes of worst-case situations:

  • Conceivable worst case: formulated by incorporating all worst-case parameters/inputs  right into a mannequin; the consequence doesn’t survive refutation efforts.
  • Possible worst case (borderline inconceivable). Includes a number of worst-case parameters/inputs in model-derived situations; the consequence survives refutation efforts (at the very least briefly).
  • Plausible worst case:  Includes at most one borderline implausible assumption in model-derived situations.

This classification is used right here in evaluating the plausibility of AIR’s situations out to 2050.

How a lot warming?

AIR’s evaluation of the climate change impression on U.S. hurricane risk is pushed solely by warming from artifical emissions. Specifically, the AIR Report focuses on emission/focus state of affairs RCP8.5.

While the emissions/focus state of affairs RCP8.5 is usually referred to as a ‘business as usual’ state of affairs, it’s the truth is an excessive state of affairs that’s implausibly excessive. RCP8.5 pathways are pushed by: very excessive inhabitants progress, very excessive vitality depth of the economic system, low expertise growth, and a excessive stage of coal in the vitality combine. Wang et al. (2017) and Ritchie and Dowlatabadi (2018) problem the bullish expectations for coal in the RCP8.5 situations, which is counter to latest world vitality outlooks and exceeds immediately’s recognized typical reserves. Burgess et al. (2020) additional spotlight the implausibility of the RCP8.5 state of affairs owing to contradictions in the assumptions utilized in establishing the state of affairs. Pielke and Ritchie (2020) concluded that RCP8.5 is systematically misused in functions of climate mannequin simulations, notably for coverage making functions. Ritchie and Dowlatabadi (2018) suggest that RCP8.5 not be used as a benchmark for coverage research.

The 2019 World Energy Outlook Report from the International Energy Agency (IEA) challenges the near-term RCP state of affairs projections via 2040 The IEA examined three situations: a present coverage state of affairs the place no new climate or vitality insurance policies are enacted by international locations; a acknowledged insurance policies state of affairs the place Paris Agreement commitments are met; and a sustainable growth state of affairs the place speedy mitigation limits late twenty first century warming to effectively beneath 2°C. The IEA projections via 2040 are shut to the RCP4.5 state of affairs (a reasonable emissions state of affairs) and far decrease than for RCP8.5.)

On timescales to 2050, I’d classify RCP8.5 as implausible and RCP4.5 as the possible state of affairs.  In phrases of a believable worst case emissions/focus state of affairs to 2050, the forthcoming IPCC AR6 can also be utilizing a state of affairs equal to RCP7.0.  However, provided that possible projections of emissions out to 2050 are plausibly shut to RCP4.5, it arguably makes extra sense to use your one ‘borderline implausible’ assumptions on future hurricane exercise and sea stage rise beneath the RCP4.5 state of affairs.

The significance of rejecting the RCP8.5 in projections of insured losses out to 2050 is that this. Any adjustments to hurricane exercise which are depending on rising sea floor temperatures could be considerably muted (relative to RCP8.5).  More considerably, the best uncertainties in twenty first century sea stage rise projections are related to doable massive instabilities in the West Antarctic ice sheet arising from the highest temperature projections pushed by RCP8.5. By eliminating RCP8.5, the highest sea stage rise projections are eradicated.

Problems with the RCP8.5 state of affairs have been mentioned in quite a few posts at my weblog Climate Etc., with references  to the major literature in addition to background info:

Citations for extra latest publications:

Amount of warming

With regards to the quantity of warming related to completely different emissions situations, projections from the CMIP5 climate fashions are offered in the desk beneath [from IPCC AR5 Table SPM.2]. Substantially extra warming is produced by the RCP8.5 state of affairs relative to RCP4.5.  The vary in the projections for a given RCP state of affairs arises from the sensitivity of completely different climate fashions to warming from rising emissions (primarily CO2).

It is vital to perceive that the temperature projections offered by the IPCC (from the CMIP climate mannequin simulations) are not predictions of precise outcomes. Rather, they need to be considered sensitivity analyses relative to rising emissions. These projections neglect any adjustments in pure climate variability that may affect precise climate outcomes in the twenty first century.

When contemplating situations of pure climate variability for the twenty first century, there are causes for pondering that the CMIP5 simulations could also be predicting an excessive amount of warming for the twenty first century, even for the extra believable RCP4.5 emissions state of affairs:

  • Observed warming for the previous 20 years is lower than the common price of warming simulated by climate fashions.
  • The ensemble of CMIP5 climate fashions don’t pattern the full vary of possible values of equilibrium climate sensitivity to rising CO2, neglecting the lowest 20% of the possible vary from the IPCC AR5.
  • Climate mannequin projections don’t embrace photo voltaic variability and volcanic eruptions, related to believable situations for a cooling impact in the twenty first century.

Specifically contemplating the quantity of warming related to the RCP4.5 state of affairs, my evaluation is that temperature change  is most unlikely to exceed the higher sure of the IPCC AR5 possible vary.

It is famous right here that the CMIP6 temperature projections for the forthcoming IPCC AR6 are coming in hotter than CMIP5/AR5, with about half of the fashions having very excessive sensitivity to CO2.  It will probably be fascinating to see how the AR6 evaluates this.  Topic for a weblog submit for one more day.


AIR makes use of a complicated methodology to choose situations from 100,000 stochastic simulations of particular person hurricane seasons.

By 2050, AIR predicts a 15% improve of Cat 3, a 25% improve in Cat 4 and a 35% improve in Cat 5 (Cat 1 and a couple of numbers are unchanged).  Not solely does the AIR projection end in an elevated proportion of main hurricanes, but in addition a rise in the complete quantity of main hurricanes.

It is tough to decipher precisely how these numbers have been decided.  Figure 2 in the AIR report relies on Figure 7 from the GFDL assertion.  GFDL’s textual content accompanying their Figure 7 is cited beneath:

“The Bender et al. (2010) study projected a significant increase (+90%) in the frequency of very intense (category 4 and 5) hurricanes using the CMIP3/A1B 18-model average climate change projection. Subsequent downscaled projections using CMIP5 multi-model scenarios (RCP4.5) as input (Knutson et al. 2013) still showed increases in category 4 and 5 storm frequency (Fig. 7). However, these increases were only marginally significant for the early 21st century (+45%) or the late 21st century (+39%) CMIP5 scenarios (based on model versions GFDl and GFDN combined). That study also downscaled ten individual CMIP3 models in addition to the multi-model ensemble, and found that three of ten models produced a significant increase in category 4 and 5 storms, and four of the ten models produced at least a nominal decrease. While multi-model ensemble results are probably more reliable than individual model results, each of the individual model results can be viewed as at least plausible at this time. Based on Knutson et al. (2013) and a survey of subsequent results by other modeling groups, at present we have only low confidence for an increase in category 4 and 5 storms in the Atlantic; confidence in an increase in category 4 and 5 storms is higher at the global scale.”

The AIR Report cited a latest publication by  Kossin et al. (2020)  which gives an evaluation of satellite-derived intensities of world tropical cyclones for the interval 1979-2017.  The evaluation was divided into two durations: Early (1979-1997) and Late (1998-2017).  The paper’s key end result  is that there’s larger likelihood of a tropical cyclone reaching main hurricane standing (Pmaj) in the Late versus the Early interval, reflecting a worldwide common improve of about 5% per decade.  When damaged down by particular person ocean basin areas, this improve is pushed by the North Atlantic, the South Pacific and South Indian Oceans.  Notably, the West Pacific (the area with largest quantity of tropical cyclones) reveals a considerable lower in the likelihood of reaching a significant hurricane.  Shown beneath is the important desk from Kossin et al. (2020; a corrigenda to this desk in the unique publication was issued).

The AIR Report additionally cites the latest assessments from  the World Meteorological Organization (WMO) Expert Team on Tropical Cyclones (Knutson et al. 2019b). This report concluded that 2oC of warming (in keeping with RCP4.5 in 2100, or RCP8.5 at mid-century) is projected to impression hurricane frequency and depth as follows:

  1. For hurricane depth (most wind pace), there’s 
medium-to-high confidence that the world common will improve. The median projected improve in lifetime most floor wind speeds is about 5% (vary 1–10%).
  2. For the world proportion of hurricanes that attain Category 4–5 ranges, there’s at the very least medium-to-high confidence in a rise, 
with a median projected change of +13%.

Author opinion in Knutson et al. (2019b) was extra blended and confidence ranges decrease for the following projections:

  1. lower of world hurricane frequency, as 
projected in most research
  2. An improve in the world quantity of very intense hurricanes (Cat 4–5).

Individual specialists and particular person mannequin simulations have supported situations as excessive as that utilized by AIR for a warming of 2C, though the plausibility of a big improve in quantity (relatively than proportion) of Cat 4/5  is disputed by specialists.  At this level, I’d conclude that such excessive outcomes for a 2C temperature improve can’t be falsified primarily based on our background data, though they’re effectively exterior of the possible vary in accordance to the IPCC and WMO assessments.  The implausibility of the AIR state of affairs rests on the excessive temperature projection from RCP8.5, and borderline implausibility of a big improve in the quantity of Cat 4/5 hurricanes.

Missing the elephants in the room

In projecting a considerable improve in U.S. main hurricane landfalls for the interval to 2050 consequently of world warming, the AIR Report ignores two elephants in the room:

  1. The historic document for main hurricanes placing the U.S. that reveals elevated exercise prior to 1970, when sea floor temperatures have been considerably cooler.
  2. The dominant function of the Atlantic Multidecadal Oscillation (AMO) in figuring out total Atlantic hurricane exercise, however notably the quantity of main hurricanes.

The most placing facet of any evaluation of Atlantic hurricanes and U.S. landfalls is the massive interannual to multi-decadal variations.  The Figure beneath (from NOAA AOML) reveals the yearly values since 1850, for  main Atlantic hurricane counts. While the quantity of main hurricanes prior to 1944 might be undercounted, it’s noteworthy that the quantity of main hurricanes throughout the 1950’s and 1960’s was at the very least as massive as for the final 20 years.

The Atlantic Multidecadal Oscillation (AMO) has a robust affect on Atlantic hurricane exercise, notably the quantity of main hurricanes.  Since 1995, the AMO has been in a heat part (related to elevated Atlantic hurricane exercise.)  The earlier cool part of the AMO (1970-1994) was related to few main hurricanes.  The earlier heat part (1926-1969) was additionally related to a excessive quantity of main hurricanes, althought sea floor temperatures have been considerably cooler than the current heat part of the AMO.  [For further information, see section 4.3.1 from my Report on Hurricanes and Climate Change].

By taking a look at the interval from 1979-2017, you possibly can see an apparent and huge improve in the quantity of main hurricanes (which was recognized by Kossin et al. 2020).  However, any try to relate the massive development since 1979 to world warming should account for the massive quantity of main hurricanes throughout the 1950’s and 1960’s that was at the very least as massive as the latest numbers which  occurred in the presence of considerably decrease sea floor temperatures.  Simply extrapolating the development from 1979-2017  (and assuming it was brought on by rising sea floor temperatures) produces a future improve in Atlantic main hurricanes that’s clearly unjustified when the longer knowledge document is examined.

With regards to precise U.S. landfalls,  Klotzbach et al. (2018) have performed a complete analysis of the landfalling hurricane knowledge for the Continental U.S. since 1900.  The determine beneath reveals reveals the time collection for main hurricane landfalls (Category 3-5). The largest 12 months in the document is 2005, with 4 main hurricane landfalls. However, throughout the interval 2006 via 2016, there have been no main hurricanes placing the U.S., which is the longest such interval in the document since 1900.

Table 6.1 reveals an inventory of the strongest U.S. landfalling hurricanes. The strongest storm on this listing occurred in 1935.  Of these 13 storms, 10 occurred prior to 1970.

While greater sea floor temperatures can enhance the thermodynamic setting for hurricane intensification, Cat 4 and 5 storms can and have fashioned at a lot cooler floor temperatures in the Atlantic. With the exception of Hurricane Andrew and the Florida Keys Hurricane, every of these exceptionally robust hurricanes occurred throughout the heat part of the AMO.

Scenarios to 2050

Because of the massive interannual to multi-decadal variability in Atlantic hurricanes, it is vitally tough to detect any sign from world warming in the historic document.

The largest improve in Category 4-5 Atlantic hurricanes is predicted by Bender et al. (2010). Owing to the massive interannual to decadal variability of SST and hurricane exercise in the basin, Bender et al. estimated that
 detection of an anthropogenic affect on intense hurricanes
 wouldn’t be anticipated for a quantity of a long time, even assuming a really massive underlying rising development (+10% per decade).

Given the dominant affect on Atlantic hurricanes of the Atlantic Multidecadal Oscillation (AMO), arguably the single most vital issue for the subsequent 30 years could be a shift to the chilly part of the AMO.   The timing of a shift to the AMO chilly part isn’t predictable; it relies upon to some extent on unpredictable climate variability. However, evaluation of historic and paleoclimatic information counsel {that a} transition to the subsequent chilly part is predicted prior to 2050. Enfield and Cid-Serrano (2006) used paleoclimate reconstructions of the AMO to develop a probabilistic projection of the subsequent AMO shift. Their evaluation signifies {that a} shift to the chilly part ought to happen inside the subsequent 15 years, with a 50% likelihood of the shift occurring in the subsequent 6 years.

The AMO not solely influences the quantity of main Atlantic hurricanes, but in addition the most popular location of U.S. landfalls.  The common quantity of U.S. landfalling hurricanes in the earlier cool part of the AMO (1970-1994) is 1.24 per 12 months, in contrast with 1.7 per 12 months throughout the present heat part (1995-2019). Florida and North Carolina confirmed markedly fewer hurricane landfalls throughout the earlier cool part of the AMO.

The timing of a future shift to the chilly part of the AMO stays unsure.  Whether a future chilly part would have a comparable distribution of landfalls additionally stays unsure.  However, a state of affairs of decreased U.S. landfalling hurricanes between 2020 and 2050 is justified by empirical proof from the historic document in context of a doable (and even possible) shift to the chilly part of the AMO prior to 2050.  This state of affairs of decrease U.S. landfall exercise to 2050 is arguably at the very least as possible as the state of affairs put ahead by AIR.

Sea stage rise situations

The AIR report makes use of a 2017 NOAA Report on Sea Level Rise Scenarios for the U.S. The NOAA Report included an Extreme sea stage rise state of affairs of 2.5 m by 2100, whose major rationale was a paper by DeConto and Pollard (2016) that prompt elevated probability of excessive sea stage rise from Antarctic ice sheet instability.

The AIR Report selects two situations from the NOAA Report to sure its sea stage rise estimates: Intermediate Low (0.24 m by 2050) and Intermediate High (0.44 m by 2050). The AIR Report consists of native projections for New York City, Miami and Houston.  Projections from the NOAA Report (since 2000) are offered beneath for these 4 cities.  The black curve displays observations via 2016.  Comparing the slopes of the observations with the NOAA situations signifies the noticed sea stage rise monitoring most carefully NOAA’s Low and Intermediate-Low situations.

The 12 months 2017 (when the NOAA Report was revealed) arguably marked the peak affect of the DeConto and Pollard (2016) paper, with subsequent analyses backing off from this excessive state of affairs of Antarctic ice sheet instability to happen throughout the twenty first century  Most considerably, subsequent IPCC assessments usually are not producing exceptionally excessive projections of sea stage rise, even for the RCP8.5 state of affairs. .

The 2019 IPCC Special Report on Oceans and Cryosphere in a Changing Climate (SROCC; Chapter 4)  gives sea stage rise projections for the interval 2031-2050, and 2046-2065.  To examine with the values utilized by AIR for 2050, the SROCC sea stage rise projections are averaged right here for the two mid century durations: for RCP4.5, 0.16 to 0.28 m; for RCP8.5, 0.19 to 0.33 m.  From what I’ve seen in the Second Order Draft, the sea stage rise projections for the forthcoming AR6 are coming in decrease than the SROCC values.

The sea stage rise situations referred to in the AIR Report are fairly excessive, with the intermediate-high sea stage rise state of affairs being effectively exterior the possible bounds of the RCP8.5 state of affairs in the IPCC SROCC Report (2019).  Relative to the extra believable RCP4.5 state of affairs for 2050, the AIR Report’s low finish state of affairs of 0.24 m is close to the high of the SROCC possible vary, whereas AIR’s excessive finish state of affairs of 0.5 m is effectively exterior of the possible vary even for RCP8.5; this huge worth is arguably implausible for RCP4.5.

So, what’s the believable worst case state of affairs for sea stage rise by 2050? The function of instability in the Antarctic Ice Sheet on the believable worst case state of affairs for twenty first century sea stage rise  is a really fast-paced space of climate analysis, with a lot uncertainty and disagreement amongst specialists.  However, as soon as the excessive ranges of warming related to RCP8.5 are eradicated from consideration, then excessive instability of the West Antarctic ice sheet and huge values of sea stage rise (e,g. the Intermediate-High state of affairs) change into more and more unlikely, if not implausible, for  reasonable charges of warming related to RCP4.5, particularly prior to 2050.Conclusions

Not surprisingly, the mixture of implausibly excessive sea stage rise projections and improve in the quantity of main hurricane landfalls in the U.S. leads to a projection of substantial will increase in injury and losses.  From the AIR Report:

“The outcomes of the evaluation present that elevated occasion frequency and sea stage rise could have a significant impression on future injury. The progress in the quantity of stronger storms, and landfalling storms total, will increase modeled losses by roughly 20%, with barely bigger adjustments in areas corresponding to the Gulf and Southeast coasts the place main landfalls are already extra possible immediately. The loss will increase prolong to inland areas as effectively, as stronger storms could penetrate farther from the coast.

The impacts from sea stage rise, utilizing the evaluation of storm surge for New York, Miami, and Houston means that by 2050, sea stage rise could improve storm surge losses by anyplace from one-third to virtually an element of two, with bigger impacts doable when mixed with will increase in the quantity of main storms. The outcomes counsel that an excessive surge occasion in immediately’s climate could also be twice as possible to occur 30 years from now.”

While predictions for world climate change out to 2100  are  weakly constrained  and extremely unsure, we now have a significantly better concept of the constraints on possible outcomes out to 2050. It is predicted that variations in the Atlantic Multidecadal Oscillation will proceed to dominate the statistics of Atlantic hurricanes for the subsequent a number of a long time, with any sign from world warming being tough to discern amidst the pure variability.

The believable worst case state of affairs has an vital function to play in some determination making frameworks.   However, the believable worst case state of affairs requires assumptions which are justified and never falsifiable primarily based on our background data.  The situations for climate change out to 2050 introduced by AIR are primarily based on an implausible emissions state of affairs that produces an implausible quantity of warming by 2050.  Even if this huge quantity of warming is accepted as believable, the state of affairs for considerably elevated  numbers of main hurricane landfalls impacting the U.S. is judged to be most unlikely if not borderline implausible.  The intermediate-high sea stage rise state of affairs in the AIR Report extends effectively past the possible vary of the most up-to-date IPCC evaluation, even for RCP8.5.

Apart from the sluggish creep of sea stage rise which in latest a long time has been monitoring the low finish of the RCP4.5 state of affairs, there’s little justification for anticipating a noticeable improve in insured losses related to U.S. landfalling hurricanes by 2050.

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