Why ageing in a climate crisis challenges risk modelling

Older people are particularly vulnerable to increasing heatwaves and drought

The combination of climate change and an ageing population has been described as a perfect storm.

“Without proper risk management these mega-trends have the potential to overwhelm individuals, private companies and government balance sheets during the course of this century.” 

That’s the conclusion of Rafal Chomik and Ramona Meyricke, who – as part of their work for the Centre of Excellence in Population Ageing Research (CEPAR) at UNSW Business School – have been studying the impact of climate change on mortality and retirement incomes.

When we think of climate change, it is most commonly extreme weather events such as the destructive Queensland floods and tropical cyclones that spring to mind. 

But it has been heatwaves and drought – increasing in frequency and intensity during the past couple of decades – that pose the bigger threat to human life. 

Nine of the past 14 years have been among the hottest on record and extreme heat has resulted in a death toll higher than from any other natural hazard. The January 2009 heatwave in Victoria alone is estimated to have caused 374 deaths. 

To track how heatwaves could play out in the future, Chomik and Meyricke drew on the Special Report on Emissions Scenarios published by the Intergovernmental Panel on Climate Change and then referred to the work on climate extremes of Nicholas Herold at the UNSW Climate Change Research Centre.

With a focus on two climatically similar cities – Sydney and Brisbane – and a time frame spanning 2020 to 2040, they looked at projected average summer daily maximum temperatures

They identified that excess mortality (the number of deaths above that expected in non-heatwave conditions) for people aged over 65 would be approximately four to six times higher than excess all-ages mortality caused by similar heatwaves. 

As Chomik notes, older people are among those especially vulnerable to extreme heat. 

“They are more prone to dehydration and are more likely to have chronic conditions that can be exacerbated by hot weather. They have lower metabolic fitness and are more likely to be taking medications – both of which can impede thermoregulation,” he says.

'There is no reason why 1000 people or more could not die in a catastrophic heatwave event. That could possibly have huge impacts for health and life insurance'


Fatality modelling

From a business point of view, making the link between heatwaves and mortality is less clear cut. Fatality modelling is subject to formidable challenges in part, says the International Actuarial Association on Climate Change and Mortality, “due to the interconnected nature of the systems being modelled and the significant uncertainties involved”. 

This could include how, on a societal level, we might adapt or mitigate the effects of climate change in the future, or whether at an individual level someone has access to air-conditioning.

“While life insurers in Australia tend to have significant amounts of both morbidity and mortality risk on their books, data on how products such as income protection, total permanent disability and trauma insurance could be affected by climate change is virtually non-existent,” says Chomik. 

“If a heart attack occurs during a heatwave, for example, it is a clinical diagnosis that is recorded with climate-related factors rarely if ever being taken into consideration.” 

Meyricke says that while the industry does a lot of catastrophe modelling and is starting to offer innovative risk transfer products and services, “we notice much less thought or development of these mechanisms in the life and health insurance space”.

Fatality modelling is not really on the radar of businesses, agrees risk modelling expert Andrew Gissing, general manager, resilience, at Risk Frontiers. 

“People are not knocking down our doors to get this data although the capability exists to provide it.”

Speculating on the reasons, Gissing says that if you compare climate hazard mortality with common forms of mortality such as road accidents, it doesn’t rank as high in Australia – yet.

“It’s interesting to look at future heatwave mortality. There is no reason why 1000 people or more could not die in a catastrophic heatwave event. That could possibly have huge impacts for health and life insurance,” says Gissing.

'Enough forewarning has been given, it is now time to act'


Core business issue

Climate change has certainly become a core business issue with discussion centred on investment, liability and transition risks – all issues that particularly affect superannuation and life insurance due to the long-term nature of funds under investment. 

With superannuation assets totalling $2.9 trillion in June (a 6.7% increase from the previous year), how these funds are allocated has enormous importance for whether an ageing population can remain financially self-sufficient. 

Market Forces, a group that campaigns to shift institutional investment away from fossil fuels, has revealed that among Australia’s 50 largest super funds, there is widespread investment in fossil fuel infrastructure. 

Market Forces' super funds table is broken down to show the percentage that investments are mired in coal – a response to the fact that most funds aren’t disclosing to their members which of these carbon intensive assets they own.

While government action on climate change remains stuck in neutral, momentum is building in the financial community around divesting from fossil fuels. 

Organisations such as the Investor Group on Climate Change, representing institutional investors with a total of $2 trillion under management, and the more recent Australian Sustainable Finance Initiative, are acutely aware of the danger of stranded assets in an old fuel economy and are promoting the environmental health of the nation as a priority for the health and wealth of financial institutions.

“[Institutional investment adviser] Mercer, in its latest analysis, says that under scenarios of global temperature rises this century of 2°C, 3°C and 4°C above pre-industrial levels, it is inevitable that climate change will impact investment returns,” says Chomik.

Uninsurable areas

There are also the costs of natural disasters to consider. Deloitte Access Economics reports that in 2015, the cost to the Australian economy was $9 billion. In 2050, that is expected to rise to $23 billion a year. 

Added to this are recent reports that areas of Australia could become uninsurable and affordability could become an issue for many individuals and small businesses. 

There is also evidence to suggest that “temperature shocks could affect growth via various channels, including lower agricultural and industrial output, higher energy demand and lower labour productivity”, say the researchers.

These scenarios can have a paralysing effect as the problems seem so overwhelming. However, scientists and academics are generally of the view that just as humankind has caused the climate problems we face, it also has the capacity to remedy them.

But as Chomik and Meyricke conclude: “Enough forewarning has been given, it is now time to act.”


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