The Impact of Climate Change on Precipitation-related Insurance Risk: A Study of the Effect of Future Scenarios on Residential Buildings in Norway

Ida Scheel and Mikkel Hinnerichsen ()
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Ida Scheel: Department of Mathematics, University of Oslo, P.O. Box 1053 Blindern, Oslo 0316, Norway.
Mikkel Hinnerichsen: Gjensidige Forsikring, Oslo, Norway.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2012, vol. 37, issue 2, 365-376

Abstract: Climate change is likely to increase the future risk of weather-related damage to buildings worldwide. This challenge is faced by society in general, but the insurance industry is particularly important in the management of the anticipated increase in future risk. In addition to adjusting premiums appropriately and gradually, they can play an important role in prevention. It is crucial to know which areas are vulnerable and to what extent. In this paper, a spatial regression model for linking weather-related insurance losses for residential buildings to meteorological and hydrological covariates is coupled with three plausible scenarios for the future climate in order to project the future number of weather-related residential building insurance losses in Norway. The model is trained on observed daily insurance loss and weather data at the municipality level. Our results indicate a dramatic increase in the projected future weather-related insurance risk in many parts of Norway. The procedure can be extended and applied to other areas globally.

Date: 2012
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