Flood risk and the modern actuary: Climate change reshapes insurance

Aerial footage of flooded town
Articles 29.04.2024

Why the insurer’s climate assessment toolkit is changing – for good

As our world and its climate change rapidly, it’s never been more important for the financial industry to confidently understand and assess climate-related physical risk. 

Actuaries in particular are increasingly seeking both a better understanding of climate- and flood-related risk, and more representative, robust ways to measure and manage uncertainty.

The modern actuary and the role of data science

The actuarial profession is evolving, and fast. 

Actuaries are rapidly moving away from historical mathematical models in favor of data science. Traditionally, actuaries have relied on historical claims data and mathematical models to assess risk. Historical data is important – but the modern actuarial role builds on this with forward-looking techniques which are resilient to change and, in turn, produce more robust risk models. Such models assess not only historical claims data but also contain a significant amount of supplementary external information and use modern techniques (for example data science, machine learning, climate and flood model output) enabling actuaries to adapt to evolving risk, price more accurately, and manage present-day and future risk proactively.

Climate research shows that…

Discover how Fathom’s award-winning flood hazard data support modern (re)insurers

Climate change and insurance: Why flood risk assessment needs an overhaul

As our climate changes rapidly, it’s crucial to understand the risk posed by flooding both now and under a whole range of unprecedented possible future conditions. 

At present, flood risk is often managed under the assumption that history is a good predictor of the future – but this is no longer the case. 

The very nature of flooding is changing, with floods becoming more frequent, severe, and occurring in places that have not seen significant flooding before. This change is driven by both urbanization and climate change, meaning that it is impossible to rely purely on historical data to assess current and future risk – we are in a non-stationary system.

Why should actuaries take note?

Our entire perception of risk stands to be impacted by our changing climate system. Meaning that past observations of rainfall patterns, river flows and sea levels no longer reflect those experienced today: we are in a non-stationary system. Climate change will impact everything from human health and mortality to financial stability and asset value, affecting underwriting, pricing and reporting across sectors from general insurance to pensions. More tangibly, it will bring changes to floods, droughts, wildfires and other instances of extreme weather at varying levels of frequency, severity, magnitude and volatility, threatening the long-term wellbeing of human society and our environment. 

Climate-focused actuarial roles are on the rise, with organizations recognizing the importance of calculating climate risk and impact in the actuarial space. To fully comprehend the risk landscape of the future, actuaries must understand how our changing climate will bring physical impacts that affect the regulatory and market landscape and result in potential financial losses. 

The actuarial toolkit in a non-stationary world

Climate risk assessment

Actuaries evaluate and quantify risks associated with climate change across various parts of the business

Advanced modeling techniques

To predict potential impacts of climate change on the business and book of business

Scenario analysis

Utilizing various present-day and future climate scenarios to prepare for a range of risks

Regulatory compliance

Ensuring organizations comply with climate risk disclosure and guidelines

Stress testing

Actuaries assess the resilience of portfolios to climate-related shocks through voluntary and mandated stress testing

Strategic decision-making and advisory

Offer deep risk insight and advise the wider business on how to incorporate climate risk within the decision making process

Download: A primer for actuaries

Want to know more about the tools available to help you understand and forecast flood risk? We’ve prepared a detailed primer for actuaries looking to be more climate-driven. 

Download the full whitepaper: Navigating global flood risk in a non-stationary world – A primer for actuaries.

Fathom white paper thumbnail, picture of flooded houses. Primer for actuaries
Book a demo

Fathom is a global leader in flood and climate risk, providing cutting-edge flood maps, terrain data and catastrophe models for insurance professionals looking to understand the impact of climate change on flood risk – both now and in the future. To learn how we can support insurers, visit our insurance page and explore the case studies or book a consultation with our expert team.

Related content

Read more
Case Study

Sompo International

Read more

Report: Can flood risk be used as a measure of asset value?

Read more

Report: Risk in climate investing

Read more

White paper: Insurance use cases for Fathom’s Global Flood Map

Read more

Navigating global flood risk – A primer for actuaries

Read more
Case Study


Read more
Case Study

AXA: a cutting-edge catastrophe model for Europe

Read more

The role of data – Key to understanding climate risk