Climate Change and Carbon Trading: New Avenues for Actuaries
CLIMATE CHANGE AND CARBON TRADING: NEW AVENUES FOR ACTUARIES
(Submitted By: Anupam Sharma, Deepa Gupta, Subhash Goyal, Swati Kwatra)
Executive summary
The increasing risk of Climate change can be measured by the fact that natural catastrophes in 2008 cost the global economy $225 billion, which is one of the costliest year in the history of Insurance business. It will have an impact on Insurance sector in terms of changing pattern of mortality, more frequent property claims etc. Climate change is different than any other risk seen by insurance industry in the sense that it will have huge impact as the time progresses in the form of increased frequency and intensity of natural disasters, thereby causing heavier insurance losses in companies’ balance sheets.
In this paper we have focused mainly on challenges faced by the insurance industry due to climate change and new avenues for actuaries in emerging carbon markets as a solution to the climate problem. Actuaries are known to analyze past events, build complex models, assess the current possible scenarios and predict what lies ahead. We have made an endeavour to explain the working of carbon markets, prospective role of an actuary in such markets and other actuarial solutions to climate change.
We have also highlighted that Actuaries role is not just to consider the change in risk factors due to climate change in existing insurance products but they can also play a key role in carbon management by assessing the risk associated with various projects and can help companies in minimizing carbon liabilities. Actuaries and climatologists can work together to construct weather related catastrophe models and can employ them to stimulate future scenarios. Actuaries with their skill set can help in evaluation and pricing of carbon transactions. Actuaries have responsibility in advancing companies on the development of corporate climate change strategy and new insurance products that incentivize green
(Submitted By: Anupam Sharma, Deepa Gupta, Subhash Goyal, Swati Kwatra)
Executive summary
The increasing risk of Climate change can be measured by the fact that natural catastrophes in 2008 cost the global economy $225 billion, which is one of the costliest year in the history of Insurance business. It will have an impact on Insurance sector in terms of changing pattern of mortality, more frequent property claims etc. Climate change is different than any other risk seen by insurance industry in the sense that it will have huge impact as the time progresses in the form of increased frequency and intensity of natural disasters, thereby causing heavier insurance losses in companies’ balance sheets.
In this paper we have focused mainly on challenges faced by the insurance industry due to climate change and new avenues for actuaries in emerging carbon markets as a solution to the climate problem. Actuaries are known to analyze past events, build complex models, assess the current possible scenarios and predict what lies ahead. We have made an endeavour to explain the working of carbon markets, prospective role of an actuary in such markets and other actuarial solutions to climate change.
We have also highlighted that Actuaries role is not just to consider the change in risk factors due to climate change in existing insurance products but they can also play a key role in carbon management by assessing the risk associated with various projects and can help companies in minimizing carbon liabilities. Actuaries and climatologists can work together to construct weather related catastrophe models and can employ them to stimulate future scenarios. Actuaries with their skill set can help in evaluation and pricing of carbon transactions. Actuaries have responsibility in advancing companies on the development of corporate climate change strategy and new insurance products that incentivize green