Climate change moves into priority position on the actuarial agenda

Johabnnesburg - The Actuarial Society of South Africa (ASSA) last week announced that it is shifting gears on climate change by creating a new Climate Change practice area.

Announcing the new ASSA Climate Change Committee to the more than 1 700 actuaries attending the 2022 Actuarial Society of South Africa Convention, Tjaart Esterhuyse, ASSA President and Head of RGA EMEA Explore, called on actuaries from all practice areas to get involved.

“Climate change is happening all around us, and we are going to see more and more unpredictable weather patterns and potentially catastrophic events. So put your hinking hats on and wonder how we as actuaries can help improve our future.”

Esterhuyse pointed out that a growing awareness across industries and organisations of the potentially far-reaching financial implications associated with climate change is causing decision-makers to turn to actuaries to not only quantify risks but to protect against the potential financial impacts.

“Until now, our focus on climate change has been at working group level within the ASSA Financial and Enterprise Risk Management Committee driven by actuaries working mainly in the climate change space,” said Esterhuyse. “By dedicating a practice area committee to climate change, we acknowledge that the risks are multifaceted and that we need to widen the scope of our efforts to include all practice areas as well as actuaries working for key stakeholders such as the regulator.”

Tasked with setting up the ASSA Climate Change Committee is Ronald Richman, current chair of the ASSA Financial and Enterprise Risk Management (ERM) Committee and chief actuary at Old Mutual Insure.

Richman explains that the ASSA Financial and ERM Committee identified climate change as an emerging risk management area for actuaries about two years ago.

“We set up a climate change working group to look at the role of South African actuaries in identifying and quantifying climate change risks and what tools and guidance they would need. On the back of this work, it became clear that climate change risks will be felt by all actuarial practice areas and beyond and we agreed that it was time to continue our work at committee level.”

According to Richman, climate change risks extend far beyond natural disasters such as the floods in KwaZulu-Natal and the Eastern Cape earlier this year.

“Climate change is creating a big system problem. We need to look beyond the obvious physical risks created by natural disasters and their immediate impact on short- and long-term insurers. We also have to consider transition risks such as the exposure of financial institutions to fossil fuel assets, the impact of a reluctance to invest in carbon-heavy industries such as traditional power producers, and the effect of rising sea levels and heat stress on buildings.”

Richman says the Climate Change Committee will continue to closely follow international trends through, among others, active participation in the Climate Risk Task Force appointed by the International Actuarial Association (IAA).

To ensure the committee's effectiveness, at least one actuary from each major area of actuarial practice in South Africa will be required to participate. An invitation will also be extended to the Financial Sector Conduct Authority (FSCA) to place an actuary who is a staff member on the committee. At least one ASSA Council member will also be represented on the committee.

According to Richman, the first committee meeting will be set up following the 27th United Nations Climate Change Conference of Parties (COP27) opening on African soil in just over a week. Richman will attend COP27 and use the insights gleaned to inform the agenda of the ASSA Climate Change Committee.