Academy Panel Identifies Actuarial Concerns Related to Climate Change

Climate change is expected to broadly drive up costs for U.S. consumers, not only for property insurance but also for health care expenditures—and Americans will see an impact on their retirement nest eggs as well, a new Academy report shows.

The recent issue paper, which was the focus of an Aug. 9 webinar hosted by the Academy’s Climate Change Joint Committee (CCJC), looks at the potential effects the changing global climate may have on the work actuaries do. It highlights the potential wide-ranging negative outcomes that could affect industries and individuals if more is not done to mitigate their causes.

“There are data connotations when it comes to climate change, and that’s what actuaries do a lot with,” said Lisa Slotznick, chairperson of the CCJC and the Academy’s president-elect. “We need to keep our eyes open on data changes.”

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Key Webinar Highlights

• Climate change will increasingly affect public health and mortality and may well impact retirement security and pension systems.
• Physical risks to persons and property will increase from more storms, floods, and wildfires.
• Transitional risks will result from policies and actions intended to move the economy toward a more climate-friendly future.
• Impact of climate change will be disproportionately felt by people with lower incomes.

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The most direct harms from the effects of climate change have been on display for years. Stronger hurricanes and severe rainstorms have increased flooding across much of the Eastern U.S. The number of hurricanes causing more than $1 billion in damages (in 2022 dollars) has tripled over the past 40 years, while deaths from such storms have increased more than 17 times.

Meanwhile, sustained droughts have led to more prevalent wildfires, mostly out West. The number of billion-dollar fires has quadrupled over the past 40 years, with the overall costs of such disasters rising nearly 11 times.

“The costs have just skyrocketed,” said Stu Mathewson, a CCJC member discussing property and casualty issues. “Since 2016, it has been straight uphill.”

While the most obvious damage wrought is currently related to property and casualty exposures, the committee members cautioned that a growing impact on public health and mortality, as well implications for retirement security and pension systems, should be on everyone’s radar.

In the area of health, heat is seen as the biggest enemy. Record-breaking temperatures have been caused by heat domes that serve as a “lid on a pot” that causes extended high temperatures in a given area, said Margot Kaplan, a committee member addressing health matters. And it’s targeting the young, old, infirm, and economically disadvantaged most dramatically.

Young children struggle to regulate their body temperature, while the elderly’s cooling mechanisms are generally not operating at peak performance. Those with chronic health issues such as asthma, diabetes, and heart conditions also struggle with the heat. These problems are exacerbated for those with low incomes, as they generally don’t have access to air conditioning or can’t afford to operate such systems. While some may use fans, they are not sufficiently cooling when temperatures rise significantly.

Kaplan said the lack of resources to address rising temperatures nationwide make this issue “a problem for everyone—government, communities, and individuals.”

Heat-related health concerns lead to higher mortality rates. Those will only grow unless action is taken to make people aware of the threats they are facing, said Charles Merz, a CCJC member who spoke about life insurance issues during the webinar. Record-setting temperatures that gripped much of the country this summer are a sign of the stressors Americans will increasingly face.

“There is no reason to think these heat challenges are going away; in fact, they most likely could get worse,” he said. “So one of the key leveraging points is to plan for it.”

That means greater education, access to clean drinking water, and a reliable power grid are necessities. But he warned that if drastic weather fueled by climate change continues unabated, non-heat-related deaths from other types of inclement weather are likely to rise as well. Actuaries may need to build their own historical data due to the underreporting of all such deaths in the U.S.

One often overlooked area that could be influenced by climate change is retirement and pensions. Extreme weather can affect the nation’s economy. Meanwhile, investments by individuals as well as state and local defined benefit plans could increasingly be influenced by companies’ climate policies.

Slotznick said while individual storms won’t have lasting effect on retirement savings, they could influence investment trends.

“Climate change may result in periods or spikes in additional increased economic volatility,” she stated. “This is a risk—it’s not a risk that we know how much or when it will occur, but it is a risk that is out there.”

The increased focus on environmental, social, and governance (ESG) investment strategies by elected officials will also influence key retirement vehicles. Some states believe they should invest in companies with high ESG scores, while others are opposed.

“It has become quite political dealing with the assets associated with state and local defined benefit programs and how to consider climate,” Slotznick said.

Additionally, Social Security is likely to see an uptick in the number of disability-related retirements taken in the years ahead due to changes in climate, the paper states.

The webinar recording and slides are available to Academy members, free as a member benefit. To access them, log in to your member profile.