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Actuaries’ Climate Change Index

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By Caterina Lindman, FCIA

In 2008, the Image Advisory Group (IAG), comprising representatives from the Canadian Institute of Actuaries (CIA), American Academy of Actuaries (AAA), American Society of Pension Professionals & Actuaries (ASPPA), Casualty Actuarial Society (CAS), Conference of Consulting Actuaries (CCA), and the Society of Actuaries (SOA), discussed the possibility of commissioning actuarial research of interest to the public as part of its efforts to enhance the profession’s image.

The idea that emerged was to focus a research project on climate change. In particular, did the concept of an actuaries’ climate change index (ACCI) have any merit? The IAG eventually decided that such an index was viable but more work was needed to pull together the various elements. Soon after this decision, the CAS created a Climate Change Committee, which, in turn, formed the Index Working Group (IWG) as a collaborative effort of the CIA, SOA, AAA and CAS.

The IWG has compiled a list of essential indicators of climate change, including:
  • Arctic Ice Cap;
  • Global Land Surface Temperatures;
  • Precipitation;
  • Sea Level;
  • Sea Surface Temperature;
  • Melting of Land-Based Glaciers;
  • Wild Fires;
  • Floods; and
  • Droughts.
It has also commissioned the research group Solterra Solutions—led by Andrew Weaver, a prominent Canadian climate change scientist—to work on the index. Research has begun on phase 1: reviewing the literature and identifying data sources for climate change indicators, and proposing a strategy to develop the ACCI. A global index of interest to the public is planned, along with a more insurance-oriented index that will be of use and significance to the actuarial community.

The global index will help inform the public about how the climate is changing, and how it is projected to alter if we continue on the path of business-as-usual fossil fuel emissions. James Hansen, one of the world’s leading climate scientists, said (James Hansen, Makiko Sato, Reto Ruedy: Perceptions of Climate Change: The New Climate Dice
—draft paper): "The greatest barrier to public recognition of human-made climate change is the natural variability of climate."

For example, at the time of writing, we appear to be having a very mild winter in southern Ontario. But are we simply having a mild winter, or is the climate changing? And if the climate is changing, and it results in milder winters, is that really a bad thing? But what if we have hotter summers as well? To explore the first question about natural variability, Hansen et al. studied the temperatures since 1951. Using the three decades from 1951–1980 as a base period, the next three decades have each been successively warmer, such that the high temperature extremes from the base period are much more common today.

June–July–August Temperature
Anomaly distribution: global

In the base period, the probability of a summer temperature that is more than three standard deviations above the mean is less than 0.5%; what one would expect for variations that follow a normal distribution. In recent years, the percentage of observed temperatures in June, July and August that is more than three standard deviations above the mean is (Hansen, ibid):

% of Extremely Hot Temperatures

These increased temperatures are becoming noticeable, as the probability of extremely hot temperatures is at least 10 times higher than what it would normally be in the base period (1951–1980).

Hansen (ibid) says: "One implication of this shift is that the extreme summer climate anomalies in Texas in 2011, in Moscow in 2010, and in France in 2003, almost certainly would not have occurred in the absence of global warming and the resultant shift of the anomaly distribution. In other words, we can say with a high degree of confidence that these extreme anomalies were a consequence of global warming."
So while we might enjoy more mild winters, there are downsides to warmer temperatures, as seen in the extreme events listed above. Climate change can impact people’s ability to access water, due to drought and the melting of glaciers. It can also affect the ability to grow food, as extreme conditions can ruin crops.

As the CIA is a partner in the working group’s work, we will share the results of our study with Institute members over the coming years.

Caterina Lindman, FCIA, is Chair of the CAS Climate Change Committee’s Index Working Group.

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