Extreme Weather Events Continue to Rise, Increasing Financial Impact

Extreme weather events are happening more frequently, according to the five-year moving average of the Actuaries Climate Index (ACI), which hit a new high for the sixth straight quarter.

The Actuaries Climate Index is an index of climate risks akin to the consumer price index, but instead of monitoring average price changes over time to a basket of standard goods and services, the ACI measures climate risks based on a basket of six extreme climate components.

The ACI is sponsored by the American Academy of Actuaries, the Canadian Institute of Actuaries, the Casualty Actuarial Society, and the Society of Actuaries. It is designed to provide actuaries, public policymakers, and the general public with objective data about changes in the frequency of extreme climate events over recent decades.

The sponsors of the index say it’s a useful tool for actuaries because climate change is having a financial impact on insurance consumers and the insurance industry, and because actuaries are experienced in assessing and mitigating the financial consequences of risks.

The components of the index include the frequency and duration of extreme high and low temperatures, heavy precipitation, drought, strong wind, and sea level changes. The index is available for 12 regions in the United States and Canada and examines how the six components and their composites are changing over time by region and across the two countries.

The index defines extreme high temperatures as the frequency of daily temperatures above the 90th percentile, while extreme low temperatures are defined as the frequency of daily temperatures below the 10th percentile. Heavy rain is measured by a maximum five-day rainfall in the month or season, while drought is measured by a maximum number of consecutive dry days per year, which is defined as daily precipitation of less than one millimeter.

High wind events are measured by the frequency of daily mean wind speeds above the 90th percentile, as measured by wind power, which has been shown to be proportional to wind damages. And sea level measurements are taken on a monthly basis via tide gauges located at 76 stations with reliable time series. The tide gauges measure sea levels relative to the land below, but since the land is moving in many places, the component measures the combined effect on coastal shorelines of land movements and sea level changes.

The ACI’s moving average smooths out monthly and seasonal fluctuations for a measurement of long-term climate trends. Increasing values in the index indicate increased occurrences of extreme climate events.

The index is expressed in units of standard deviations from the mean for a reference period that spans from 1961 to 1990. After reaching a value of 1.18 standard deviations in spring 2019—which was revised upward because of data updates from a preliminary reading of 1.16 above the index’s historical reference period—the index’s five-year moving average topped out at 1.20 as of summer 2019, which is when the most recent measurements were available.