Warming of the Oceans and Implications for the (Re)insurance Industry

There is new, robust evidence that the global oceans have warmed significantly. Given that energy from the ocean is the key driver of extreme events, ocean warming has effectively caused a shift towards a “new normal” for a number of insurance-relevant hazards. This shift is quasi irreversible— even if greenhouse gas (GHG) emissions completely stop tomorrow, oceanic temperatures will continue to rise.
In the non-stationary environment caused by ocean warming, traditional approaches, which are solely based on analysing historical data, increasingly fail to estimate today’s hazard probabilities. A paradigm shift from historic to predictive risk assessment methods is necessary.
Due to the limits of predictability and scientific understanding of extreme events in a non-stationary environment, today’s likelihood of extreme events is ambiguous. As a consequence, scenario-based approaches and tail risk modelling become an essential part of enterprise risk management.
In some high-risk areas, ocean warming and climate change threaten the insurability of catastrophe risk more generally. To avoid market failure, the coupling of risk transfer and risk mitigation becomes essential.