Guy Carpenter Joins Marsh McLennan in Response to US Federal Insurance Office on Issues of Climate Change Impact

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As climate change and the associated increase in natural catastrophe events alter the contemporary risk landscape, there is now an opportunity for many entities to partner with the (re)insurance market and put their expertise to work.

Consequently, Marsh McLennan was pleased to respond to the Request for Information on the Insurance Sector and Climate-Related Risks from the US Federal Insurance Office. The response addresses issues concerning remediating the impacts of climate change.

Guy Carpenter experts participated extensively in this response. Points raised include the need for increasingly sophisticated modeling to consider wide-area risks, such as access roads and power lines, and how they could lead to non-damage business interruption. By focusing modeling efforts exclusively on a building’s boundaries, there is likely an under-read of climate risk faced by the insured and the insurer.

Another issue with modeling affects physical risks for large property portfolios. Catastrophe models don’t effectively assess forward-looking impacts because they are based on historical loss data that is not representative of future climate. To obtain regulation-relevant metrics such as average annual loss and 1-in-100-year loss, models must be adjusted, based on climate science, to approximate future situations. Guy Carpenter has helped numerous insurers in this process.


Making Key Points

Guy Carpenter experts provided many of the recommendations in Marsh McLennan's response to the Federal Insurance Office.