Aon’s Catastrophe Modeling Capabilities

		Benefits	Uses	Deliverables
Catastrophe Modeling	Impact Forecasting, AIR	Insight into current physical risk from climate Simulates thousands of scientifically probably events Outputs a probability distribution	Set geographic risk tolerances and insurance requirements Credit risk stress testing Physical risk disclosure Risk transfer pricing and structuring	Probabilistic/stochastic output Average annual and probable maximum insured loss Can be conditioned for climate scenarios
Climate Risk Modeling	The Climate Service - Climanomics	Scientific analysis of the impact from climate change on natural perils Scenario-based, outputs expected loss Projects future decades to 2100	Translates climate physical and transition risk into financial impact Provides a view of future climate scenarios that impact business decisions today	Scenario based output for RCP 4.5 and 8.5 pathways Average annual economic loss on decadal periods to 2100
Mapping and Visualisation	Impact on Demand	Location-based visualisation platform Aggregates third-party data providers to create a customisable view of data and risk layers	Bring together catastrophe and climate model output into one platform Enable a seamless integration of current and future climate analytics	Visualise exposure to physical risks Set up real time event alerts Real-time exposure summaries Location Intelligence
Climate Risk Advisory and Risk Transfer	Insurance, Capital Market Solutions	Aon helps clients to access the full insurance capital stack, from traditional programs through to solutions such as ILS	Bespoke insurance programs for financial institutions delivering credit, hazard and flood programs Targeted coverage to address the “insurance gap”	Mortgage Impairment LPI/REO insurance programs ILS/Catastrophe bonds Parametric insurance

 

In June 2020, Aon formally announced a collaboration with The Climate Service (TCS) to help clients understand and manage climate risk today and into the future. The decision came after deep investigations into the TCS methodology with our reinsurance analytics experts, which is reflected in a recent Forrester Research report that ranked different climate analytics providers. Our relationship with The Climate Service combines science and technology to measure, monitor and manage the financial impacts of climate on business and investments. The combined services bring together complementary analytics with a climate focus.

The TCS Climanomics® analytics platform enables reporting and disclosure consistent with the TCFD framework and empowers decision-making by putting a price on both transition and physical risk. With multiple climate scenarios covering present day to the year 2100, insights from the platform help investors and businesses manage risk, build resilience, and drive change.

Aon is also a member of ClimateWise, an organisation comprised of members from the insurance industry that is dedicated to communicating, disclosing and responding to the risks and opportunities associated with the growing divide between total economic and insured losses attributed to climate change.

Aon’s Approach to Climate Change

Greater attention is being paid to climate change, where the effect of greenhouse gas (GHG) emissions is predicted to raise global temperature. It is also anticipated that extreme weather events may become more likely in certain regions and potentially more intense. This focus is driving global economies towards carbon neutrality, and that philosophy reinforces the general trends of sustainability and corporate social responsibility.

The effects of climate change risks are felt across all activities of a business – the value proposition, properties, staffing, supply chain, and so forth. The challenge for businesses, industries and investors is to understand this changing risk profile, particularly in the management of transitions as industry attempts to maintain resilience in the course towards a zero-carbon future.

Climate Modelling

Climate model’s downscale climate science into scenario-based narratives that describe both physical and transition risk.

Climate models can:

• Provide a translation of climate risk into financial metrics at an aggregate or per peril basis
• Look at different time horizons and scenarios which illustrate critical decision pathways
• Allows implementation of climate science into investment and strategic decision making
• Enable risk consulting to align climate analytics into total cost of risk approach, balancing retention, risk control/mitigation, and transfer according to appetite
• Align to and must be led by a governance approach.