IN 1999, Contingencies ran an article by
Andy Peara and Evan Mills suggesting that actuaries may be able to play a greater role in
climate-change issues by active participation in climate-change research (“Climate for Change: An Actuarial Perspective on Global Warming and Its Potential Impact on
Insurers,” January/February 1999). Ten years on, the topic
Because it will be among the first to feel the effects of climate shifts, the insurance industry is the canary in the coal
mine for climate change. As a result, the insurance industry and
the actuarial profession have a particularly important leadership role to play. To enhance the actuarial profession’s educated
capacity in this area, the Casualty Actuarial Society (CAS) earlier this year established a permanent committee to consider
the issue of climate change and to “recommend, support, and
perform research on climate change and assess the potential
risk management implications for the insurance industry.” It’s
important to note that while the media focus largely on global
warming, climate change considers more than just temperature changes: It includes precipitation trends, humidity, soil
moisture content, cloudiness, storm tracks, long-term weather
trends, sea-level changes, glaciers, polar ice, and more.
basis. The reconstructed global temperatures suggest
that the current climate is perhaps the warmest in at
least the past millennium. The unusual nature of the
warming spike in the second half of the 20th century
is further supported by paleoclimatic information. As
Richard Wolfson, professor of physics at Middlebury
College, and others have pointed out, these interpretations are based only on collected and reconstructed data,
not climate models.
Global average temperature increases are not spread
uniformly over the earth. In particular, the higher latitudes experience greater increases. Ice core samples
suggest that it may have been 125,000 years since the polar regions were materially warmer for an extended time
than they are now.
While the debate continues, the evidence supports the
very high likelihood for a warming trend. Accordingly, the
focus is shifting from whether the earth is getting warmer
to understanding the implications of its warming.
Is the Earth Getting Warmer?
The preponderance of evidence indicates that Earth is warming, especially in recent decades. The 2007 report of the Intergovernmental Panel on Climate Change (IPCC), a scientific
intergovernmental body set up by the World Meteorological
Organization and by the United Nations Environment Program
that was a co-winner of the 2007 Nobel Peace Prize, summarizes the situation as follows:
Warming of the climate system is unequivocal, as is now
evident from observations of increases in global average
air and ocean temperatures, widespread melting of snow
and ice, and rising global average sea levels.
This conclusion is based on thermometric temperature
records for the past 150 years and proxy indicators that
corroborate the thermometric observations. These proxies
are physical quantities that serve as temperature surrogates
and include annual tree rings, coral reefs, lake sediments,
isotope ratios, etc. Statistical methods are used to combine
the proxies to reconstruct temperature patterns on a global
Are Humans at Fault?
It’s very likely that humans are playing a key role in earth’s
current warming trend.
Global temperature depends on many factors that
can be identified and mathematically quantified, e.g., the
Milankovitch cycles (cycles in Earth’s orbit that influence
the amount of solar radiation hitting different parts of the
earth at different times of the year), fluctuations in solar
output, atmospheric gases, etc. In terms of atmospheric
gases, carbon dioxide (CO2) concentrations in the atmosphere correlate closely with global temperatures, and CO2
levels are rising. The 2007 IPCC report summarized the
considerable research in this area:
Global atmospheric concentrations of carbon dioxide,
methane, and nitrous oxide have increased markedly as a
result of human activities since 1750 and now far exceed
pre-industrial values determined from ice cores spanning
many thousands of years. The global increases in carbon
dioxide concentration are due primarily to fossil fuel use
and land use changes, while those of methane and nitrous
oxide are primarily due to agriculture.
Most of the observed increase in global average
temperatures since the mid-20th century is very likely
EIJKELEBOOM / DREAMSTIME
Managing the Risk
By Susan Woerner
48 CONTINGENCIES JUL/AUG.09