Aon announces ‘significant progress’ in partnership with Karlsruhe Institute of Technology on climate risk

Aon has said it has made ‘significant progress’ in its collaboration with the Karlsruhe Institute of Technology that look to enhance re/insurers’ view of risk.

According to the firm, the extended collaboration will incorporate the latest climate science into Aon’s Impact Forecasting’s European flood models to help enable insurers to access more accurate loss estimates to help shape better decisions for underwriting, reinsurance and regulatory requirements.

Adam Podlaha, head of the Impact Forecasting team at Aon, said: “In addressing the impact of climate change on our clients’ businesses, we have implemented our long-term strategy of atmospheric model development with short-term deliverables. Our collaboration with KIT is a significant driving force in ensuring that output from our modelling suite is based on the latest climate research.”

He added: “We are already witnessing the global challenges from climate change, and so this initiative aims to assist clients navigate volatily in their operations, build resilience and make better business decisions around risk transfer and risk mitigation.”

The news coincides with the first anniversary of major flooding across Western and Central Europe, which accounted for $13 billion in insured loss and represented the second costliest event of 2021. European flood peril was also a key risk highlighted in the sixth Intergovernmental Panel on Climate Change (IPCC) assessment report.

KIT provides a stochastic flood event set for different emission scenarios and time horizons if frequency and duration of extreme events change under future climate conditions. These scenarios will be integrated into all of Impact Forecasting’s European flood models over the next three years, enabling re/insurers to gain a physical view of flood risk based on both current and future climate.

To continue progress, Aon’s Impact Forecasting team has launched a pilot programme that incorporates Central Europe climate change studies and previous research from KIT into its Czechia flood model. The German flood model’s climate scenarios are scheduled for launch in the third quarter of 2022.

Integrated into Impact Forecasting’s loss calculation platform ELEMENTS, this will enable insurers to assess the impact of climate-related losses on their portfolio for different time horizons, helping to identify where future European flood risk is caused directly by atmospheric or indirectly by weather-driven perils. The results account for future flood protection assumptions, and socio-economic and insured exposure changes in risk-prone areas.

Ladislav Palán, Impact Forecasting’s lead in climate change quantification for flood, added: “Our study for Czechia shows the effect of a changing climate varies across Europe and depends on the size of river catchments. Keeping flood defences unchanged, the financial impact under such conditions might lead to a significant increase of Average Annual Loss (AAL) and losses in shorter return periods while tail losses might decrease. These findings confirm the complexity of the studied phonemana and the need for partnerships and constant development.”

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