Helping the insurance industry thrive, whatever the weather

NERC science enables the UK insurance sector to maintain its status as a global financial powerhouse, contributing significantly to the UK economy.

Why it matters: Storms, floods, fires, droughts – every year, these and other natural hazards cost thousands of lives and cause destruction and disruption across the globe. Contributing £40 billion and 300,000 jobs to the economy, the UK insurance industry (the biggest in Europe) shields clients at home and abroad from damaging financial and physical impacts. To do this effectively, stay competitive and reinforce their own resilience, insurance and reinsurance firms must secure the best possible understanding of the threats and risks such hazards pose. That means accessing and acting on the very best, most up-to-date science – a need made all the more urgent by a changing climate, and increasing demand for insurance payouts due to extreme weather.

What we did: NERC has delivered a wealth of cutting edge science that insurers harness to help them develop the right products and equip themselves to meet current and future challenges. Strong bonds with the industry play a key role in shaping the scope and direction of our work. For example:

  • Storm clusters: NERC-funded scientists pinpointed a link between the frequency and intensity of storms over Northern Europe, providing a platform for mathematical models that enable more accurate pricing of storm-related risks.
  • Tipping points: NERC support has generated new ways of identifying approaching thresholds which, if exceeded, would lead to irreversible changes in the climate – information crucial to insurers' ability to manage their risk portfolios effectively.

NERC science also plays a leading role in climate science internationally, including through inputs to the UK Climate Change Risk Assessments and International Panel on Climate Change reports. This benefits the insurance sector indirectly by:

  • Enabling more accurate weather forecasts, which allow insurance clients and society more widely to better prepare for hazards (see NERC Impact Report 2017); and
  • Providing increasingly accurate climate projections to inform business decisions and development of the regulatory framework.

We have been working with NERC for decades to improve risk assessment of the impacts of natural catastrophes. The NERC science allows us to respond more effectively to client needs from corporate to sovereign level.

- Willis Towers Watson

The NERC-funded PhD students produced outputs of genuine business value, solving commercial problems with a scientific angle.

- Lloyd's of London

Overview of NERC's impact on the insurance industry

Overview of NERC's impact on the insurance industry

(A text description of this diagram is available.)

Some premium numbers:

  • 1 million: vulnerable African farmers insured against drought
  • £2bn: saved in insurance payouts by informing the closure of the Thames Barrier
  • £62-130m: annual industry losses cut by improved climate models

Contributing to the UN Sustainable Development Goals:

UN Sustainable Development Goal 8: Decent Work and Economic Growth UN Sustainable Development Goal 9: Industry, Innovation and Infrastructure UN Sustainable Development Goal 13: Climate Action

Flood victims being rescued in an inflatable dinghy

Impacts and benefits:

Win-win: industry-leading tools & models boost the sector's growth and protect communities
Delivering a step change in flood simulation capabilities, the LISFLOOD-FP computer model is serving as a blueprint for competitive pricing of flood reinsurance by improving the accuracy of prediction models. Over 1 million Zambian farmers have insured themselves against drought thanks to TAMSAT, which has helped UK insurance firms expand into the African market and develop products tailored to its needs. Providing daily rainfall estimates for the entire continent, TAMSAT aids assessment of drought risk and assists insurers' decision-making.

Bridge-builders: partnerships & networks deliver access to world-class skills
A partnership involving NERC's National Centre for Atmospheric Science (NCAS) and the Willis Research Network played a key role in helping reinsurance brokers estimate potential losses due to extreme weather events, by developing a state-of-the-art tropical cyclone decision-making tool. The collaboration also encouraged Willis Re to translate academic research into practical insurance applications estimated to be worth £800,000/year.The NERC-funded PURE programme established new productive collaborations between scientists and industry practitioners to improve the handling of uncertainties related to natural hazards and wider risks.

Forward thinking: advanced warnings enable better preparedness and avoids insured losses
Improved global climate models that aid risk assessment have cut insured losses due to storm damage by £62-£130 million per year, while a new model, developed by the NERC-funded UK Centre for Ecology and Hydrology (CEH), extends warnings of severe weather from 2 to 5 days ahead could cut the cost of flood damage by £76-£127 million/year. Our science protects homes by informing the closure of the Thames Barrier – E.g. during the 2013/14 winter floods, the Thames Barrier was closed 28 times, safeguarding the London flood plain and protecting properties from flooding, saving £2bn in insurance payouts.

Investing for the future: With a clear focus on tomorrow’s as well as today’s threats, NERC science strengthens links between environmental science and the insurance sector. Current initiatives include:

  • UK Climate Resilience: a £19 million collaboration led by NERC and the Met Office aiming to deliver robust interdisciplinary climate risk and adaptation solutions research, as part of the UKRI Strategic Priorities Fund;
  • Collaboration with Innovate UK to develop a programme to deliver improved data and analytics on climate- and other environmental change-related hazards, vulnerabilities and risks for the financial services sector; and
  • Funding for PhD students and Knowledge Exchange Fellows working closely with the insurance sector.

Contact

impact@nerc.ukri.org

Overview of NERC's impact on the insurance industry (text description)

  • NERC long-term investment in research, training, innovation and infrastructure:
    • New knowledge, models and software;
    • Trained scientists;
    • Knowledge exchange
  • Insurance industry more resilient and effective
  • Society better prepared for natural hazards
  • Stronger economy, more resilient society
  • More informed decisions by insurance industry
  • More accurate weather and climate forecasts

Published February 2020

Evidence sources for this case study are listed in the PDF version, available in the downloads section.