NCAS, working in collaboration with the Met Office Hadley Centre, and with £1.8million funding from NERC, researchers at Reading University have developed high resolution climate models. One of the outcomes is that researchers are able to model the likely frequency and severity of hurricanes and other wind storms with much greater accuracy than in the past.

The UK is a major global player in high value added professional services such as financial services and insurance. The UK insurance industry is the largest in Europe and the third largest in the world. Reinsurance is the part of the insurance sector that provides insurance for insurers
– a means by which they can protect themselves from the risk of very large losses from a catastrophic event such as a hurricane.

Risk or catastrophe modelling is a method of assessment used by the reinsurance industry to estimate potential loss from catastrophic events and to price risk / premiums. Collaborations between NERC researchers and the reinsurance industry have developed to exploit the potential of high resolution climate models to advance catastrophe modelling in the reinsurance industry.

One such collaboration is the Willis Research Network. Willis Re is one of the ‘big three’ reinsurance brokers. It provides funding for postdoctoral research fellowships and PhD students at partner research institutes. One measure of the economic impact of this research is the willingness of Willis Re to use its resources to ‘pull through’ academic research into practical applications in the insurance industry. This is estimated to be £800,000 per annum.

Improved catastrophe models will help to ensure that reinsurance companies are not unknowingly accumulating risk that could lead to large losses and destabilise the industry. It is estimated that if this led to only a 5% reduction in average insured losses due to storm damage, this would be worth between £62-130million per annum to the UK insurance industry.

The UK reinsurance sector is worth about £7.2 billion. This is a global industry and the UK is a high-cost business environment. The creation and exploitation of knowledge (such as the incorporation of dynamic modelling of tropical cyclones into catastrophe models used by reinsurance companies / brokers) is one factor that will help the UK to maintain its competitive position as a centre for reinsurance and support its growth in the future.

Read More - Climate Modelling and Insurance Report (278.91 kB)

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