Milliman's president and chief executive, Dermot Corry, explains how the actuarial consulting and risk management services provider is supporting insurers to develop comprehensive climate risk resilience strategies with its expertise and innovative tools
How is Milliman supporting insurers worldwide in managing the financial risks of climate change?
Milliman is helping insurers and other organisations to manage the financial risks of climate change through a combination of advanced modelling, strategic advice, and innovative tools. We have a few areas of focus, including:
- Expertise and Collaboration: Our deep subject matter expertise in insurance business models, sustainability risks, advanced climate risk modelling, and geospatial analysis enable us to collaborate with external climate organisations to provide comprehensive solutions, including solutions that serve low- and middle-income populations.
- Regulatory Compliance: We assist insurers in navigating new regulatory requirements, such as the European Corporate Sustainability Reporting Directive (CSRD). We help them define and communicate comprehensive transition plans and sustainability goals and outline the strategies and actions to achieve them.
- Resilience Strategies: We support insurers in developing comprehensive resilience strategies for the short, medium, and long term. This ensures organisations are well-prepared to face the evolving landscape of physical and transition risks, as well as the multidimensional impacts on their business models.
- Causal Risk Approach: Our proprietary causal approach helps insurers to understand the complex interrelationships among sustainability and macroeconomic factors including inflation and growth, as well as their potential business-level impacts. This causal mapping starts by understanding the interconnectedness of risk as it relates to an organisation, uncovering how sustainability risks impact the business's key drivers and relationships; we then develop system-level insights and decision-useful scenarios.
What new climate risk and sustainability services/tools does Milliman plan to offer insurers over the next year?
Over the next year, Milliman plans to introduce several new climate risk and sustainability services and tools, including:
- New models: We develop bespoke models to assess and manage sustainability risks, with a particular focus on macroeconomic impacts and mortality/morbidity impacts where industry efforts have lagged. We also plan to model the dynamics of local insurance markets and the potential for disruptions associated with climate risk. This will help insurers understand and mitigate the impacts on their business, addressing both asset risks and liability/underwriting risks.
- Catastrophic Risk Atlas: We are introducing an accessible, low-cost solution that will enable governments and NGOs to create targeted adaptation and resilience strategies in order to best reduce the risk for communities.
- Advanced Scenario Testing Tools: We are expanding our suite of scenario-testing tools to provide more detailed and actionable insights into climate risks for insurers and financial institutions.
How does Milliman expect climate risk modelling to change over the next 5-10 years?
Over the next 10 years, we expect insurers to have to adapt to changing climate conditions. In many locations the hazard from wildfire and flooding will increase. Intense hurricanes will become more common. Drought and extreme heat will be more frequent.
Catastrophe models will become increasingly important and will need to be developed for some geographies where they do not currently exist, both in the United States and other countries. Using historical event catalogues that do not account for climate change will become increasingly untenable.
More sophisticated methods to incorporate climate models into catastrophe models will be developed, both in calibrating catastrophe models to past experience and creating estimates for future conditions. These methods will likely need to be addressed in the regulatory environment, in order to ensure stability of insurance markets. Catastrophe models with climate change-conditioned event catalogues will also be crucial to directing adaptation efforts through funding property hardening, community mitigation, and aligning insurance pricing with changing risk.
What's behind Milliman's increased focus on biodiversity risk?
The world is facing twin climate and biodiversity crises. For instance, recent Oxford University research noted that over the next 10 years, nature-related risks to the UK economy were equal to or greater than climate-related risks.
Given the new Global Biodiversity Framework envisioned in the 2022 Kunming-Montreal agreement ("Paris for Nature"), by focusing on biodiversity risk, Milliman aims to:
- Improve the understanding of how biodiversity loss interacts with broader sustainability and enterprise risks that impact business objectives and customer outcomes.
- Help insurers to quantify the impacts and design adaptations and mitigations to better manage the impacts of biodiversity and nature-related risks.
- Help insurers to align their strategies with broader sustainability goals, developing opportunities for themselves and their customers to not only manage risks, but to positively contribute to the preservation of natural ecosystems within the services they provide.
