Climate change is one of the greatest challenges facing our planet today. Whilst the extent and timing of climate change effects are subject to a great deal of uncertainty, it is generally accepted that human health, life and property will be adversely affected. This paper investigates the liability-side impact of climate change, focusing on the effects on UK life insurers. It considers the mechanisms through which climate can affect mortality, models and quantifies some of those effects and discusses the implications for the life insurance industry. Whilst the focus is on the UK, it should be clear that the approaches used can be applied more widely.
This paper does not address other effects of climate change, such as medical insurance and critical illness claim rates, property damage, or possible changes to behaviour and the future appetite for insurance. Nor does it address the implications of climate change for asset values. For more detail on these topics please see the articles in Willis Towers Watson’s special Insurer Solutions climate risk series on our website.
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The first chapter provides context for the remainder of the paper, introducing existing climate research and projections that will be drawn upon later in the paper. It also provides an overview of Willis Towers Watson materials on climate change. Read more.
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The second chapter explores the concept of a driver of mortality and how this can be used in the context of climate risk. A range of climate variables are explored, presenting evidence of the link between these variables and mortality; a short-list of the variables to be used for modelling is developed. Read more.
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The third chapter describes our modelling approach in detail. Driver-based modelling is introduced, along with details of how such a model has been calibrated to examine climate risk. The development of climate change scenarios is set out and the consistency of our mortality projections with existing mortality projections is discussed. Read more.
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The individual and combined effects of stresses to these climate variables are presented and discussed in the fourth chapter. Also considered are the potential impacts of other unmodelled consequences of climate change, and of climate volatility in individual years rather than long-term trends. Read more.
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The fifth and final chapter explores the implications of our work for life insurers and pension schemes. We identify areas for future research and consider the potential role of the actuarial community. Read more.
Richard Marshall is a Director in WTW’s Insurance Consulting and Technology business and leads the development of mortality and demographic risk models for our UK business.
