Italian risk managers told to tool up to combat climate change

The third day of proceedings at Anra’s 21st annual conference last week was dedicated to an analysis of the new risks posed by energy transition and digitalisation.

Those are two examples of how the role of a risk manager will need to evolve and follow change, ideally anticipating that change and its impact on the business before others.

The two perils stated above are part of a global context that has been rapidly changing on several fronts. However, a denominator common to many of these future threats is climate change and specifically its impact on natural disasters, argued Fabio Petruzzelli, natural hazards manager, AXA XL Risk Consulting, during his keynote speech at the Italian risk and insurance management association’s virtual annual conference.

Mr Petruzzelli explained that natural disasters and climate change are the events that today bring the greatest economic and human losses.

According to the data presented, the annual economic losses deriving from natural disasters were estimated at $200bn for the decade 2010-2019, and this was also the loss recorded in 2020. This compares to losses of about $27bn per year in the period 1970-1980.

The year 2020 was no exception, despite the prolonged lockdowns in many countries. This year, greenhouse gases are expected to rise further as life gradually gets back on track. Furthermore, Mr Petruzzelli added, 2020 also saw the highest temperature ever recorded in the Arctic Circle.

The impact of climate change in terms of human lives is considerable. In the first 20 years of the century there were 1.25 million victims of natural disasters, and the number of migrants and displaced persons attributed to the same cause is constantly rising.

The Intergovernmental Panel on Climate Change has designed scenarios that make it clear that the mitigation of physical risks is not negotiable, because these directly impact on human society, starting from the food chain.

Alternative pathways that envisage mitigation and adaptation to climate change, however, pose considerable transition risks and in turn have potential economic impacts. The solution to be pursued is to make society more resilient and to emerge stronger.

“The framework proposed by AXA XL Risk Consulting identifies four approaches, aimed at anticipating, responding to emergencies and working to restore conditions prior to catastrophic or acute climatic events, or even better ones,” explained Mr Petruzzelli.

“The first step is to identify and prioritise catastrophe risks; we then move on to a portfolio analysis (portfolio cat modelling), which allows us to estimate the aggregate financial impacts of natural disasters; followed by a risk engineering approach that includes both analysis and inspections. Finally, the monitoring and response phase is activated, aimed at supporting the continuity of the business,” he continued.

The tools that provide transparent risk analysis are particularly useful for risk managers in a country such as Italy, which, because of its morphological structure, has a strong exposure to physical risks, concluded Mr Petruzzelli.

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