Navigating tomorrows global climate risks today

By Steve Penwright, Large Property Technical Director, U.S. National Accounts, Zurich North America

From atmospheric rivers in California to heatwaves in Australia and flooding in Libya, catastrophic weather events powered by a changing climate are occurring more frequently and often with greater ferocity. The implications of climate risks for businesses, governments and global society are significant and growing. And while domestic perils are typically on the radar of U.S.-based risk managers, there may be blind spots about the exposures of foreign operations and assets based on changing climate patterns.

New climate patterns bring new global risks

The World Meteorological Organization (WMO) reported that 2023 was the warmest year in the 174-year observational record and that global mean sea level in 2023 reached a record high since satellite observations began in 1993.¹

Worldwide, natural disasters in 2023 resulted in estimated losses of around $250 billion, according to a report from Munich RE.² In the United States alone, there were 28 weather and climate disasters (with damage costs exceeding $1 billion) in 2023, surpassing the previous record of 22 in 2020, according to the National Oceanic and Atmospheric Administration.³

Europe experienced its fifth warmest summer ever in 2023, according to Copernicus Climate Change Service.⁴ Asia may have been hit hardest by climate-fueled severe weather events in 2023, with record-breaking heat in India, Thailand and Vietnam, a sandstorm in Beijing, China, and category 5 Typhoon Mawar that battered Philippines, Japan, Taiwan, and Guam.

In addition to the tolls in property damage and loss of life, global wildfires generated approximately 2,170 million tons of carbon emissions in 2023, of which the Canadian wildfires accounted for 22%.⁵

Climate-related impacts are altering the global insurance industry’s understanding of historic models used to estimate loss trends driven by weather events. While we in the industry do not always agree on whether hurricanes are happening more often, there is growing agreement they are becoming more intense, with rising sea surface temperatures likely powering higher wind speeds and stronger storms. However, when it comes to perils such as wildfires, floods, and severe weather events other than hurricanes, recent history tells us that they are indeed becoming more frequent and severe.

Taking action today to avert or mitigate long-term exposures

While getting up to speed on current climate-related risks, many risk managers are also looking ahead to a future in which severe weather events, and even sea level rise, may impact their facilities and operations around the globe. Drawing upon proprietary modeling tools and climate data, our Zurich Climate Resilience Services team is helping international customers take a long view of potential exposures due to weather extremes.

Given rising sea levels and increasingly heavier rainfalls, flooding is a particular concern since it is widely viewed as the most damaging weather phenomenon. Most property risk modeling products offer only 90-meter views that may not accurately measure variables such as terrain elevation or differentiate slopes and water levels within range of a building. With our Zurich Catastrophe Risk Insights (CRI) proprietary modeling program, our customers and Risk Engineers have a more granular view of flood risk for a particular property. Zurich’s CRI approach provides a more realistic, focused view of the risks potentially threatening a client’s property during a severe weather event.

For example, we worked with a major toy company constructing a new facility in China on what was determined to be a flood plain. Based on our CRI analysis, we advised the client to excavate a moat around the facility that would effectively divert flood waters after a major rainfall.

The same tool can help identify preventive actions that customers can take to increase the survivability of a facility during a wildfire event, such as maintaining safety zones and clearing combustibles that can fuel fires sparked by drifting embers.

Putting climate-related risk insights to work

These assessment tools can help companies address near-term risks. But what about the longer view of 50 to 100 years from now? If climate change continues to progress (hopefully at a slower rate given global efforts to reduce carbon output), what long-term impacts can multinational businesses expect, especially for assets in the developing world? Will sea level rise alone inundate a facility many decades from today even during a moderate storm? Will a building site under consideration remain viable across an extended time horizon, or should ground be broken somewhere else?

Working with a market leader in climate risk analytics, Zurich provides customers with industry leading analysis of multiple perils, globally and across time horizons for these and other climate scenarios. Adopted by some of the world’s largest firms, these physical climate risk analytics can help businesses identify more resilient and sustainable locations for expansion, especially in developing countries where future climate risks may be unknown quantities. Our climate experts use these analytics to assess how changing climate patterns might affect customers’ locations decades hence, so they can mitigate future risks.

Through Zurich Resilience Solutions, we have been working with a global shipping enterprise to conduct on-site climate assessments at five critical port terminals in Europe, Asia, Africa and the United States. These site visits are supported by a team of climate data experts who use the latest climate science, data, and modeling techniques to develop mitigation solutions tailored to each port.

Zurich also helped a large multinational manufacturer validate flood exposure at a critical facility likely to be affected by rising sea levels over the next 50 years. Given the facility’s location near a major body of water, the risk manager was concerned about the availability of adequate flood capacity in the marketplace. Our analysis validated their concerns, arming them with information that will help them make informed decisions about potential risk mitigation investments, such as building physical protection to help them access greater flood capacity, or possibly relocating the facility altogether.

The future is now

Even if carbon output is slowed through concerted, global cooperation in the near term, significant climate change is expected to continue, creating risks that will catch some businesses unprepared if the right efforts are not made today. The challenge is even greater for multinational companies, which may not be aware of potential climate-related exposures in regions where their operations are located. In some cases, the potential risks, decades away, are largely unknown. At other times, a company may recognize the risks ahead but may need help coming up with solutions.

In this era of climate uncertainty, multinational companies need access to knowledge and resources for climate-related risks in the diverse regions where they may have exposures, so they’re not caught off-guard by climate impacts in the years to come. That’s why it’s important to have a relationship with an insurance provider with rich historical data, constantly evolving tools, global expertise, and a strong track record in sustainability.

Zurich Climate Resilience Services can help. We believe managing climate risk is essential for every business. We take a methodological approach that includes data and insights from across your organization, a multi-phase analysis of your entire portfolio, and drill down to specific sites to develop possible scenarios of how climate risks will impact your operations. Our aim is to help you build climate-resilience in your business today and in the years to come.

For more information, visit Zurich Climate Resilience Services.

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