Aon details three-point upgrade in Climate Risk Monitor expansion

Aon unveils the expansion of its Climate Risk Monitor (CRM) offering as the insurance sector looks to improve its understanding of how a changing climate influences natural perils worldwide. Sustainable Insurer talks to Megan Hart, global head of analytics and collaborations at Aon, about the key aspects of the update.

The CRM was launched in March 2024 and enables clients to improve understanding of their operational exposures to physical climate risk.

The newest update has been completed in partnership with global flood and climate risk modelling firm Fathom and deepens the already established relationship between the firms, as Fathom flood data is already incorporated in Aon’s Florida Flood v3.0 model and other global flood products from Impact Forecasting.

As part of the update, the CRM’s functionality across flash flooding, river flooding, coastal flooding and rising sea levels has been boosted by high-resolution data from Fathom, allowing Aon’s clients to assess US, UK and Japanese flood risk at a resolution of 10x10 metres and 30x30 metres for other regions globally.

In addition to flood risk, the latest update to CRM incorporates modelling of global tropical cyclone risk, including forward-looking climate projections. The full offering now models perils including drought, extreme rainfall, extreme heat, freeze risk, wildfire potential, flood, and tropical cyclone.

Hart told Sustainable Insurer that the key updates revolve around flood risk, tropical cyclone risk and the addition of vulnerability and follow extensive consultation with clients on their current and future climate risk and what they most need to improve their resilience in the face of changing risk.

On flood risk, Hart said this peril has become increasingly more important for clients for a number of reasons.

“One is that it is one of the perils where we have the highest scientific confidence that the risk is going to be changing. We're going to see more precipitation so the potential for flood events is increasing,” she said.

“It's also a very damaging peril, especially in areas where you haven't had flood risk in the past [and] particular locations and assets may not be prepared for managing that sort of flood risk.”

Hart also cited how tropical cyclone risk has become of greater importance due to the 2024 Atlantic hurricane season, which produced 18 named storms, 11 hurricanes and five major hurricanes. She noted how tropical cyclone risk is “really critical both from a scientific point of view and from a practical point of view” for Aon’s client base.

“There's huge societal impacts from tropical cyclones, huge impacts on the insurance industry and so there's a lot of scrutiny around how climate change is impacting tropical cyclones globally,” Hart said, adding that this is prompting questions from clients on how such storms could impact their risk management.

“There's still a lot of uncertainty around how frequency and severity could be changing,but there is an evolving consensus that climate change is going to lead to more powerful storms.”

The final major part of the update, Hart explained, concerns the integration of an occupancy [or asset type] specific vulnerability using the climate hazard data “to provide that more complete view of climate related risk”.

She said the CRM had previously been “very focused on hazard and revealing how hazard is changing but we do know that different industries and different occupancies are going to be affected differently by that changing risk”.

Hart cited how industries such as agriculture and construction, for example, may be affected by perils including drought and extreme heat.

“We needed to draw that connection between hazard changes and risk changes and that really requires an understanding of the industry and occupancy you're looking at and an ability to draw those conclusions.

“So this is our first release of our vulnerability that does provide those specific impacts based on what are the driving perils that are impacting a portfolio of assets and individual assets as well.”

Hart also explained how the increasing prevalence of climate risk shows the importance of such risk assessments for both “insurance companies from a portfolio perspective and for corporate clients in terms of understanding what the risk is to their own assets”.

“It's really key from an insurers’ perspective to say what does this risk look like in the future, does that impact the footprint of our portfolios or how we're offering coverage.

“And [it also impacts] from a corporate aspect in terms of where do we want to place our people and our assets so that they're going to be the most resilient and if maybe there isn't an opportunity to make a different choice there, how do we invest inadaptation to ensure that our risk is reduced,” she added.