Insurance companies are planning to recalculate their catastrophe models amid the climate change push and a warming planet, although rates have not yet risen, according to a report in The Wall Street Journal.
"It takes a lot of premium, a lot of margin, to account for this increased uncertainty, and I'm not sure we're doing a good job of reflecting this and charging appropriately for it," Arch Capital Group CEO Marc Grandisson told an industry conference Thursday, per the Journal. "We need to incorporate a greater range of possible outcomes into our pricing."
Amid natural disasters, climate change debate, and estimates of global warming, insurance companies are anticipating an unpredictable future, because forecasts have been depending on meteorological history and natural disaster costs – which are now expected to change, albeit unpredictably.
"Catastrophe models — computer algorithms that analyze disasters and property data to predict losses — grew more sophisticated over time," the Journal wrote. "Their secret sauce was building databases of weather events going back decades."
Expect the insurance rates, which have yet to increase considerably, to eventually be jacked up on forecasts. Rates are re-evaluated on a year-to-year basis, according to the report.
"We don't discuss the question anymore of 'Is there climate change,'" Munich Re CEO Torsten Jeworrek, a seller of insurance for insurers. "For us, it's a question now for our own underwriting."
Storms with hailstones larger than a penny in diameter increased significantly between 1979 and 2016 in central and southern Europe, according to Munich Re research, which increased insurance losses, and Munich Re predicts it will get worse than previous models have shown, the Journal reported.
"We believe there is a strong indication that climate change is a driver of this trend," Munich Re's Ernst Rauch told the Journal, adding his company is recalculating its models. "This might entail many things – in some regions also an adjustment in price."
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