Incorporating Climate Change into Actuarial Practice: SOA Article Series

April 2025

Authors

Joan C. Barrett, FSA, MAAA
Sam Gutterman, FSA, CERA, FCAS, MAAA, FCA
Rebecca Owen, FSA, MAAA
Ruth E. Schau, FSA, EA, FCA MAAA
William R. Wilkins, ASA, CERA, FCAS, MAAA
Society of Actuaries Research Institute Catastrophe & Climate Strategic Research Program Steering Committee

Executive Summary

It is becoming increasingly clear that climate change, whether caused by natural or man-made processes, impacts our health, our life expectancy, our property, and our quality of life. This results in increased risk to insurers, bankers, investors, and other financial institutions. For some institutions, like property and casualty insurers, the risk may be immediate and catastrophic in nature as evidenced by recent events such as Hurricane Helene and the Los Angeles wildfires. For others, like life insurers, the risk may seem to be minimal. After all, the number of deaths attributable to these catastrophic events is a relatively small percentage of the overall mortality rate. Of course, this type of analysis ignores the impact of indirect deaths caused by factors such as air quality. Similarly, the nature of climate change is unpredictable. Today’s risk is unlikely to be the risk a year from now or the risk for ten years from now. For example, in the 1980s, there were only three or four catastrophic events a year. In 2024, there were 27.1[1]

As with any type of risk, it is incumbent on actuaries and other risk analysts to evaluate and, potentially, mitigate that risk as it applies to their organization and to their specific responsibilities. This requires both a qualitative analysis to identify the key risk factors and a quantitative analysis to measure the impact of a specific risk. Actuaries and other risk analysts already have basic risk management skills, but we need to know more about how it impacts our practice areas. In some cases, actuaries may also have to enhance their skill sets.

These articles are designed to provide a starting point for those who are starting to incorporate climate change into their day-to-day work. For those who are already incorporating climate change into their day-to-day work, these articles may be a useful way to expand your understanding beyond just your practice area.