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Actuaries combine to measure the impacts of natural disasters


Alain Castonguay

26 June 2017 07:00

Catherine Jacques-Brissette | Photo : Réjean Meloche

To put into perspective the actuarial data and analyze the financial consequences of natural disasters have been the watchwords for a group of actuaries that have developed two indices of climate for the benefit of the insurance industry of damages.

At the Day of damage insurance, 2017, Catherine Jacques-Brissette presented the work of developing two indices designed to measure the impacts of climate change. She is the chair of the commission on climate change of the canadian Institute of actuaries, specialist, corporate responsibility and environment at Bell Canada.

At the end of November, thecanadian Institute of actuaries has launched the index to actuarial climate (IAC). It consists of measuring the changes associated with extreme weather events. In creating this index is similar to that affecting consumer prices, the Institute wanted to assess the trend in the increase or decrease of extreme weather events. One can discover the

A new index will be launched at the beginning of 2018. It will be called the index of the actuarial climate risk (IARC). It will connect the risks of extreme weather events with damages to property and to people. We will correlate the data that were used to create the IAC with the economic losses, the rates of death and bodily harm caused by climate change.

By these indices, the Institute wanted to show trends in connection with extreme weather conditions. It is this point which interests greatly the insurers, » noted Ms. Jacques-Brissette.

The Six components are measured : the high and low temperatures, rainfall, the duration of droughts, strong winds, as well as the level of the sea. «These are the six variables that have the most effect on people and the economy,» she said.

The reference period is 1961 to 1990, for which data are numerous and reliable. For each of the components, it has been estimated that extreme corresponded to a value greater than the 90th percentile compared to the reference period. To estimate the IAC, we use monthly data, but aggregates it to obtain seasonal data.

The reference period is equal to 0. Until 1995, the trend has remained very close to 0. Since 1995, the curve is sharply on the rise. In the summer of 2016, the value of the index was to 1.72 standard deviation, the third highest value. The peak was reached in the fall of 2015, where the value exceeded 2 standard deviations. The five-year moving average is now 1 standard deviation, which clearly shows the higher frequency of extreme weather events, says Catherine Jacques-Brissette.

The design of the IARC will also help to connect extreme weather events with damages reported, as heavy rainfall and losses associated with flooding. The results were converted to a scale of 1 to 10, with the value 5 for the reference period.

We will adjust the data in function of the risk exposure, by using averages weighted according to the demographic size of the population in the given region. The extreme episodes that occur in areas that are more populated are more concerned with the actuaries, says Catherine Jacques-Brissette. Since 2005, it is already known that the IARC has been higher than the reference period to 96 % of the time.

The IAC is updated on a quarterly basis, and we can follow the trend by subscribing to the free newsletter. The Internet site allows you to see the charts and maps and download the data in Excel version, in order to allow the conduct of more in-depth analysis. Since its launch, the site has had 13,000 visitors and has logged more than 800 downloads of data.

Mrs. Jacques-Brissette encourages actuaries to conduct their own analysis of the underlying data of the EPC, in particular to better estimate the relationship between insurance claims and the various components of the index. Each insurer may compare its historical claims to the variations of the index or its components in order to derive the modeling adequate to its future pricing levels.

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