Scientists model the shifting climate risk, the impact of climate change, based on Representative Concentration Pathway (RCP) scenarios. This is the measure of carbon dioxide in the atmosphere, taking into account carbon capture as well as the trends in emission reductions.

To understand how our climate may change in future, we need to predict how we will behave, not just how the climate will behave. For example, will we continue to burn fossil fuels at an ever-increasing rate, or will we shift towards renewable energy? The RCPs try to capture these future trends. They make predictions of how concentrations of greenhouse gases in the atmosphere will change in future as a result of human activities. The four RCPs range from very high (RCP 8.5) through to very low (RCP 2.6) future concentrations. The numerical values of the RCPs (2.6, 4.5, 6.0 and 8.5) refer to the concentrations in the year 2100.

In the insurance context, the effects of climate change, the immediacy of the physical and systemic effects from extreme weather, the demands for precise measurement and understanding causality of the new risks, have all emerged faster than many expected and they’ve been generally underestimated.

Evidence is mounting that the insurance industry will soon need to reshape its business models, but only a few stakeholders have taken meaningful action: several of the major global insurers are incorporating climate risk considerations in their new product launches and underwriting processes. Some others have publicly committed to reducing their exposure to carbon-intensive industries by 2030 or 2040.

In a recent survey for McKinsey & Co, more than half of insurance executives said the industry’s climate response so far has been underwhelming and inadequate, even though the majority said that responding to climate risk is either ‘very important’ or ‘a top priority’.

Climate risk forecast to double in societal cost by 2050

McKinsey’s research shows that the value at stake from climate-induced hazards could, conservatively, increase from about 2% of global GDP to more than 4% of global GDP in 2050. And the risks associated with climate change are multiplying.

The new climate risks vary significantly according to the precise location and topography. They are evolving, and they have nonlinear systemic effects that tend to be regressive. In other words, a relatively small shift in one aspect of the data, such as average rainfall, can reach a tipping point where it changes an entire system, and threatens to overwhelm complete areas or complete local economies in certain scenarios.

As mentioned, the global climate change forecasts use four scenarios of greenhouse gas concentrations in the atmosphere, the RCPs, shown in the chart below. Of the four scenarios, we have already missed the action targets for RCP 2.6, the lowest risk scenario. This was embodied in the 2016 Paris agreement, but not enough action has taken place to meet this scenario, which would result in a less than 2°C global temperature rise. We have already seen 1.2°C of warming.

The most likely current scenario today, RCP 4.5, will most likely result in a near 2°C rise in temperature by 2100. This will have significant impacts on the climate of the UK, with more severe storms, dryer summers, wetter winters, and sea level rise. These will have knock on impacts on flooding, subsidence, wind damage, wildfire, and coastal erosion.

The timescales for these changes are still in the long term and are still uncertain. However, in places like Exeter the number of properties at a high risk of flooding will increase from 7% currently, to over 12% by 2041 under RCP 4.5 projections.

Effort to curb emissionsEnergy generationTransport Temperature 2081-2100 (average increase relative to 1986-2005)Sea level 2081-2100 (average rise relative to 1986-2005)Extreme weather 2081-2100Adaptation required
LowCoal-fired powerCars, trucksRCP 8.53.7°C0.63 mLarge increaseHigh level at high cost
MediumMixedCars, trucks, new mobility solutions, mixedRCP 6.02.2°C0.48 mModerate increaseMedium level at medium cost
MediumRenewablesCars, trucks, new mobility solutions, mixedRCP 4.51.8°C0.47 mModerate increaseMedium level at medium cost
HighRenewables with Emissions captureBicycles, public transport, new mobility solutionsRCP 2.61.0°C0.40 mSmall increaseLow level at low cost

The current forecast from the 2022 IPCC report is that the world is headed for the upper bounds of RCP 4.5 if there is some significant and immediate action. But RCP 4.5, 6.0 and 8.5 are all realistic scenarios. Globally RCP 8.5 is the band that we are currently in, including the current levels of mitigation of emissions.

RCP 6.0 requires us to meet the pledges on emission reductions countries have pledged to meet by 2030. RCP 4.5 requires immediate radical action and going beyond those pledges.

As shown in the chart, we can refer to RCP 8.5 as a high impact scenario, and RCP 6.0 and 4.5 as medium impact scenarios. But under every single one of these scenarios we will see significant impacts to global weather systems which will require adapting and mitigating the impacts. There is no good scenario in terms of weather events and the rising insurance costs.

Climate effects on flooding are non-linear and negative in all global scenarios

The impact of climate change on flood risk will be a complex one, with impacts being regional, even within the UK. Some areas will see an overall decrease in flooding, whereas other areas will see more extreme events. But the type of flooding will also be impacted. Under a 1-degrees global warming scenario, daily rainfall rates are expected to increase by 6% to 7%, with sub daily rainfall rates – those causing these short sharp severe downpours – likely to increase by 12% to 14%. This kind of sudden downpour was the cause of the July 2021 flooding in London, where we saw not only traditional surface water flooding, but also the failure of the traditional sewer systems where properties experienced flooding in basements from backed up pipes.

The additional rainfall will be exacerbated by the increase of basements in properties. There are over 5,000 newly excavated basements over the past ten years in London alone (which can be mitigated with our new basement dataset in LexisNexis® Map View). At the same time there has been a decrease in permeable surfaces in urban areas from increased populations and urbanisation, which is affecting surface water run-off and leading to localised flooding.

The UK government has pledged £5.2 billion on flood defences over the next six years. However the standards of the already built defences will be tested in the years to come. With increased rainfall a current 100-year standard of flood protection may not be sufficient just 20 years from now.

Within LexisNexis® Map View we serve the latest datasets to measure the flood risk of properties.

Climate change in the United Kingdom is projected to cause dryer summers with increased drought, and wetter winters. These are the conditions we saw in 2018 that caused a 400% increase in subsidence claims. The shrink swell cycle is driven by the swelling of clay rich soils in the wetter winter months and the drying during the summer. This shrink swell increases the ground movement and will be exacerbated by warmer summers.

All the major weather risk models are predicting the increased risk from subsidence in the UK from climate change. The chart below is based on the RCP 4.5 emissions scenario and shows the current trend towards wetter winters and dryer summers by the 2030s, compared to the 1981-2010 baseline for average rainfall.

UK monthly rainfall anomaly (baseline 1981-2010) forecast for 2030s, based on RCP 4.5 scenario

Source: LexisNexis Risk Solutions data processing based on UK Met Office data (Open Government Licence)

Windstorms will be as severe but are projected to cross the UK more frequently in the future. While the overall projected maximum wind speeds are not expected to increase significantly, the increased frequency of windstorms is expected to cause insured losses to increase by 18% over the next 100 years, based on the global scenario of a 1.5°C temperature rise (and by 27% based on a 3.0°C temperature rise), according to the ABI’s research paper ‘UK Windstorms and Climate Change’.

Within LexisNexis® Geospatial Intelligence solutions we have a new windstorm model using 80 years of previous storm data that can be used to determine the risk of gusts causing property damage across Europe. Insurance providers need to keep on top of new data sources to help them tackle the impacts of climate change, helping them mitigate against current risks, and prepare for future changes.

Follow the link to the LexisNexis Risk Solutions website to find out more about how we support insurance providers.