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Measuring climate change from an actuarial perspective: A survey of insurance applications

Author

Listed:
  • Nan Zhou
  • José Luis Vilar‐Zanón
  • Jose Garrido
  • Antonio José Heras‐Martínez

Abstract

Climate change refers to persistent alterations to global Earth's climate, such as a rise in global temperatures, which have reached unprecedented peaks in recent years. At the same time, global mean ocean‐and‐sea levels are on an upward trajectory. These climatic shifts significantly influence the frequency, intensity, and duration of extreme weather events, such as heatwaves, heavy precipitations, droughts, floods, and tropical cyclones, which represent substantial risks and challenges for the insurance industry. This paper delves into the profound impact of climate change on the insurance sector, with a particular focus on the agriculture, property, health, and life insurance industries. Our scientific approach consists in measuring climate change through an index composed of a basket of climate and weather‐related extremes, such as the Actuarial Climate Index™ (ACI) defined in and for North America, and its European counterparts, the Iberian ACI (IACI) and French ACI (FACI) climate indices. We discuss how these indices help quantify the impact of climate change on the balance sheets of insurance companies and, therefore, its impact on the sustainability of the insurance business. The paper underscores the pressing need for the insurance industry to adapt and strategically plan for the increasing risks associated with climate change.

Suggested Citation

  • Nan Zhou & José Luis Vilar‐Zanón & Jose Garrido & Antonio José Heras‐Martínez, 2024. "Measuring climate change from an actuarial perspective: A survey of insurance applications," Global Policy, London School of Economics and Political Science, vol. 15(S7), pages 34-46, November.
    • Handle: RePEc:bla:glopol:v:15:y:2024:i:s7:p:34-46
    DOI: 10.1111/1758-5899.13465
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    References listed on IDEAS

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    Cited by:

    1. Foroni, Claudia & Gelain, Paolo & Marcellino, Massimiliano & Lorusso, Marco, 2026. "Severe weather and financial (in)stability," Working Paper Series 3211, European Central Bank.
    2. Claudia Foroni Paolo Gelain Marco Lorusso Massimiliano Marcellino, 2026. "Severe Weather and Financial (In)stability," BAFFI CAREFIN Working Papers 26266, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    3. Piluso, Fabio & Strano, Eugenia & Ceraso, Danilo, 2025. "An analytic framework for assessing the impacts of physical risk through a (climate-related) expected shortfall," International Review of Economics & Finance, Elsevier, vol. 103(C).

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