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Continuing the evolution of the ACI and ACRI

This article originally appeared in the CIA (e)Bulletin.

By Yves Guérard, FCIA

Foreword by Marc Tardif, CIA President: Despite best efforts by the Actuaries Climate Index (ACI) partners, the CIA included, it has been a challenge to develop an Actuaries Climate Risk Index (ACRI) as initially conceived. Although some important first steps have been taken, the partners feel that a lack of adequate data makes the proposed Index impossible to produce in a robust, comprehensive way at this time. However, the CIA will continue to work with its partners to prioritize improvements to the ACI, while providing support to the parallel development of a robust ACRI on a longer term. A description of these developments is summarized below by Yves Guérard, a representative of the CIA on the joint committee coordinating the work of the four associations.

Since November 2016 the CIA and its partners, the American Academy of Actuaries (AAA), the Casualty Actuarial Society (CAS), and the Society of Actuaries (SOA), have been publishing the Actuaries Climate Index (ACI). Alongside this work, the partnership has been exploring how to develop a complementary Actuaries Climate Risk Index (ACRI) focused on increases in property losses that could have been attributed to changes in climate variables.

This has proven to be an overly ambitious undertaking. SHELDUS (Spatial Hazard Events and Losses Database for the United States) does not identify increases in the number and value of assets at risk, which are the main cause of increased losses. Being able to attribute any part of the losses to changes in climate variables thus depends on assumptions about the increase in the number and value of exposed assets and corrections for increases in resilience due to changes in standards and adaptation initiatives. The inherent uncertainty of climate variables compounds the difficulty of this attribution.

Although the partners have been able to produce estimates of the impact of extreme environmental conditions, and assessments of the uncertainty therein, the model is not as robust as the CIA hoped for. Some concerns with the initial model include a low R2, unclear assumptions, a narrow confidence interval, and a complex methodology. Additionally, the limited number of events covered by the Canadian Disaster Database prevents extending the model to the five Canadian regions.

Preliminary findings of the ACRI model have recently been published by the AAA in the form a research study. The SOA and CAS are also working on their own analyses of the losses in the seven US regions as the partnership continues its exploration of possible ACRI models and data interpretation. The CIA will continue to work with these partners to improve both the ACI and ACRI, placing our priority on finding better data, especially for Canada.

Adequate data is a prerequisite for any future developments of either the ACRI or ACI. The CIA has already acknowledged the importance of this need in the Time to Act public statement released in September 2019, with the top-line call to action: Prioritize national-level data collection on the financial impacts of climate-related events such as floods, windstorms, and wildfires.”

The CIA, as the professional association representing actuaries in Canada, is committed to engage with government and industry decision-makers on our path towards more robust and applicable versions of the ACI and ACRI that will help all Canadians face the risks of climate change armed with reliable information.

This article reflects the opinion of the author and does not represent an official statement of the CIA.

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