The Boston Globe has an article series on climate change titled “Into the Red: Climate and the Fight for Our Lives.” It addresses broader societal implications, but the title evokes questions about life and long-term insurers’ liabilities. Specifically, the changing climate is poised to have deleterious effects on mortality and morbidity rates, particularly in a high greenhouse gas (GHG) emissions scenario. Both chronic changes (such as elevated temperatures and prolonged drought) and acute events (such as the increasing frequency and severity of hurricanes and wildfires) can significantly affect human health.
Until recently, life and health insurers in developed economies have kept climate change at arm’s length. But many organizations today are now taking steps toward governance and disclosure. They also are increasingly taking action to prepare for the future of their business and are assessing corporations’ contributions to emissions. However, some still perceive they can afford not to focus on the now.
In the insurance sector, the primary focus within climate risk has revolved around the physical impacts—such as property and crop damage—but societal dynamics increasingly are coming into play. Meanwhile, we have had another summer of extremes, from flooding in places not considered flood zones to large-scale wildfires to experiencing the hottest summer on record. All likely have had impacts on health status and deaths.
Large-scale Impacts of Climate Change
While climate-related migration and food security may be global threats that are not yet center-stage industry concerns in the United States, the global nature of our supply chains and the impact of diseases like COVID-19 have demonstrated our international interdependence. So, the United States may not be immune to these international concerns. We already are witnessing inklings of change, with real estate values being based on insurability and major property and casualty carriers exiting California’s admitted market this year.
While your local grocery store inventory may suffer due to floods this past summer, it is not genuine food insecurity. We also note that desalination is being considered in Arizona, highlighting the gravity of water availability on agriculture. Water scarcity and shifting precipitation patterns underpin several climate hazards, such as drought and flooding, which can, in turn, lead to cascading health risks.
Drought can affect water quality, but another example is how wildfires, often sparked by drought conditions, can compromise water quality by causing erosion and flooding that contaminate local water systems. Wildfires and other acute perils can directly result in death and disability, but there are also downstream impacts on water and air quality. Wildfire complexes also can destroy communities, limiting access to health care when it may be needed most.
There are further cascading health risks, such as the recognition of climate-induced anxiety and depression. These looming manifestations may comprise existential threats to our vitality and liabilities. While catastrophic impact likely will bring concerns far beyond financial insolvency, the truth may be somewhere in between for life and health liabilities. To explore what we know about the evidence of these impacts, let us dissect the relevance of a few key pathways from climate change to morbidity and mortality impacts.
Many regions have a long history of dealing with chronic heat stress, including the Southwest United States, which has held the world record for the highest temperature for more than 100 years. However, the acute manifestation of heat stress—extreme heat—is increasingly relevant, particularly in communities with less adaptive capacity. Sustained extreme heat can overwhelm even well-prepared places like the Southwest United States. According to the Centers for Disease Control and Prevention (CDC) Environmental Public Health tracking website, in July 2023, heat-related illness and hospitalizations increased 88% in California, Arizona and Nevada compared to the five-year average of 2018-2022 (see Figure 1).
Figure 1: Hospitalization From Heat-related Illness in the Month of July in Arizona, California and Nevada
Source: CDC data
As global temperatures rise, the frequency and intensity of heat waves are expected to escalate in tandem, which can pose a significant risk to individuals’ well-being. Prolonged exposure to extreme heat has been shown to lead to heat-related illnesses, such as heat exhaustion and heatstroke, which can be fatal if not managed promptly. Vulnerable populations, including but not limited to the elderly and those with preexisting medical conditions, can be particularly at risk. One study performed in the United Kingdom found that as temperature increased by 1°C in a heat wave, mortality increased by 1.8%. This means that on a day when maximum temperatures reach 40°C, we would anticipate mortality rates for those aged 65 and older to potentially increase by nearly 10%. Another study found a 1°C increase in temperature to increase cardiovascular mortality by 3.4%, respiratory mortality by 3.6% and cerebrovascular mortality by 1.4%.
- Information in this article also appears on PwC’s website.
- For more climate-related information, review the Society of Actuaries (SOA) consumer severe weather impact survey findings.
Heat stress and extreme heat were perhaps, until recently, thought to be an “others” problem that didn’t affect U.S.-insured lives. Bangladesh and its workforce adaptations to heat stress lie in an entirely different latitude. Some may suggest that continental Europe, which generally has lower rates of air conditioning and aging demographics, is more susceptible. And one might even think communities without widespread air conditioning in the United States are isolated, mainly among socioeconomically disadvantaged populations. But large segments of (insured) populations may have limited access to air conditioning and are concerned about extreme heat.
In group insurance, though, specific sectors may be particularly vulnerable, with outdoor laborers showing signs of premature health issues such as nephrology, and construction workers experiencing increased injuries, cardiovascular conditions and 13 times the likelihood of death from heat stress. Healthy hikers also have succumbed to heat stress. Incidents such as these gradually reveal a more widespread and relevant scenario in the United States.
Beyond life insurance, disability may be intricately linked to workplace stress and adverse working conditions. However, the mass implementation of air conditioning is not a straightforward solution. Many U.S. manufacturers lack proper air conditioning, and the cost of installing HVAC systems in a plant in Oklahoma was reported to reach a staggering US$19 million.
The public is increasingly paying attention. There has been a notable surge in the interest in “temperature” over the last 15-20 years, and the same is true for internet searches of “heat wave,” as shown in the Figure 2. In other words, temperature is increasingly relevant to our daily lives and publicly recognized as such.
Figure 2: Google Search Trends Over Time
Furthermore, elevated temperatures can contribute to deteriorating air quality and the formation of ground-level ozone and other pollutants, exacerbating respiratory ailments like asthma and chronic obstructive pulmonary disease (COPD). Increasing wildfire risk also degrades air quality, resulting in a rise in chronic conditions and an overall diminished quality of life.
One study that focused on the impact air quality can have on mortality found that fine particulate matter (PM2.5) exposure can increase the risk of cardiovascular mortality by 8%-18% for adults over 30. While the hospitalization statistics and ultimate death toll from the air quality degradation may not be known yet—and perhaps will not be for many years, as we know from smoking that lung cancer deaths can be decades in arrears—we see anecdotal evidence of the immediate impact. An example is the occurrence of elevated cough and smoke-related visits to emergency rooms during the recent Canadian wildfires in places like Calgary. There also have been studies linking an increase in wildfire smoke to hospital visits, with one study showing an up to 10% increase in wildfire PM2.5 compared to only a 1.3% increase in nonwildfire PM2.5.
A Modeling Solution
As the intersection of climate change, health and insurance gains prominence, it becomes evident to consider a thorough approach to help navigate the challenges that may lie ahead. The experiences of heat-related health issues, compromised air quality and the evolving perception of climate risks all underscore the complex nature of this multidimensional challenge.
To better anticipate and address the potential impacts of climate change, a strategic tool like climate scenario modeling emerges as an invaluable resource. Climate models are tools to project future scenarios that illustrate the escalation of chronic and acute events. Insurers can leverage these models to comprehend how their policyholders may be affected based on location and adapt their assumptions accordingly. The Intergovernmental Panel on Climate Change (IPCC) crafts a range of climate scenarios, known as SSPs, utilizing Coupled Model Intercomparison Project (CMIP6) models that vary according to carbon emission levels. Examining this spectrum’s low and high ends enables insurers to estimate a range of potential assumptions and assess how these changes might affect their operations.
What steps can insurers consider? First, understand the potential climate-related risks facing both assets and liability portfolios. This can be done qualitatively, using frameworks set forth by the Task Force on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB) that are already in place in day-to-day risk management practices. The type of insurance sold and material product lines can influence the risks most significant to a company. Then, quantify the key risks using a climate scenario analysis approach.
While changes may be less significant in the near term, the long-term nature of life insurers’ portfolios may show vulnerabilities in cash flows. By employing climate scenario modeling, the insurance industry can transition from a reactive stance to a proactive one, helping to formulate measures that safeguard individual health and financial well-being in the face of a rapidly changing climate landscape.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.
Copyright © 2023 by the Society of Actuaries, Schaumburg, Illinois.