Past no longer guide to the future on weather-related construction risks

Construction risk managers and their insurers can no longer rely on historical data for climate-related risk and must instead use modelling and forward-looking projections to understand the growing threat.

A panel at Commercial Risk’s Construction Risk Management Europe conference highlighted how climate change is impacting construction risk management, noting how historical data is a poor indicator of future trends.

Stuart Large, business development director at climate risk analytics firm Jupiter Intelligence, said that historical data might show a trend for higher weather-related losses over the last 20 or 30 years. But he added that given the pace of losses from most perils is accelerating, models are a much better indicator for future trends.

For instance, return periods for severe weather events are rapidly shortening, warned Large.  “We talk about one-in-500-year events, but we are finding that those assumptions are false. For example, the US Gulf of Mexico had three one-in-500-year events in five years. Return periods are much shorter than we thought,” he told the risk and insurance managers gathered for the event.

Amar Rahman, global head of climate change resilience services at Zurich, said people tend to think of perils, such as wind or flood, in isolation. But he said there is now “more and more interaction between perils”.

“Sea level rises and increasing hurricanes and tornadoes are leading to flooding deeper inland, impacting places that traditionally did not have flooding,” he said at the conference held with Aon as headline partner.

That interaction between perils is a challenge for risk managers, said Rahman, noting scenarios with cascading events.

It is vital that construction risk managers bring all this information together to build resilience, futureproof and best present their risk to the insurance market, said Tracie Thompson, global head of ESG and climate at Aon.

And she noted that that underwriting is moving from an art to a science, based on forward thinking. “It is about how we can help clients to build resilience based on the data that allows them to access risk capital. And historic data is not lending itself to underwriting models anymore,” she said.

Rahman said the volume and granularity of climate data has increased, but he added that the price of data has become cheaper as computing power rises, helping firms to develop climate scenarios. “Data gives us greater confidence in developing such scenarios,” he said.

The risk manager on the panel, Steven Carney from Copenhagen Infrastructure Service Company (CISC), said risk professionals are using models at a very early stage in developing projects. “We are doing early nat cat screenings, both to see the risks right now, as well as looking at the lifetime of the asset,” he said. If you access the technology earlier you can avoid many issues, he added.

Later on in the discussion Rahman stressed that a sound risk management strategy doesn’t only rely on insurance. “It is the last line of defence. Depending on the complexity of your project, the size, you need to think about multiple lines of defence before you transfer the risk. That is what resilience is about,” he said.