Tim Andrews

The Actuaries Institute has named Tim Andrews 2019 Actuary of the Year.

Mr Andrews is a Director and Chair of Finity Consulting, where he leads the Natural Peril Pricing and Climate Risk practice. Together with the Actuaries Institute, Mr Andrews developed and launched the first Australian Actuaries Climate Index, which measures the occurrence of extremes in weather, a key pointer to the risks of climate change.

“During Tim’s career, of three decades to date, he has done significant work to increase awareness of natural disasters in the insurance and financial services sectors and the need to mitigate risk associated with climate change,” said Actuaries Institute President Nicolette Rubinsztein.

“He has used his training as an actuary to develop models of the key sources of climate risk, including flood, bushfire, storm and cyclone, collaborating with meteorological experts, hydrologists and geoscientists,” she said. “His contribution, and his role as a mentor to young actuaries, has been outstanding.”

The Australian Actuaries Climate Index provides the first objective measure of the frequency of extremes in weather and demonstrates the integral role actuaries play helping businesses understand and respond to external forces.

Mr Andrews pointed to his work on the Climate Index as among his proudest achievements but said there remains much more to be done.

“I hope that we can go one step further and analyse the link between weather extremes and the risks faced by the community,” he said. “This would enable the development of indices measuring, for example, the extra bushfire risk on hot, dry and windy days or the extra risks to health during heatwaves.”

Mr Andrews said the extremes of weather provided challenges for insurers, but actuaries were well placed to contribute to the available climate change knowledge base by engaging with scientists and building models to quantify the potential financial risks.

One of the biggest issues would be how best to address the issue of affordability for homeowners in lower socio-economic groups, in areas subject to high natural hazards.

“We know we need to spend more on mitigation to reduce the risk,” he said. “Nonetheless there are ongoing questions about whether there is a role for well-designed risk pools that can subsidise premiums for high risk groups, but which still provide the right incentives for the mitigation to occur.”

Ms Rubinsztein said that the Actuary of the Year is a prestigious award presented to a member of the Actuaries Institute, recognising actuaries who have made a notable contribution to the profession.

“It not only recognises the achievements of individuals, it also raises awareness of actuarial capabilities, encourages the profession to continuously make positive contributions, and also enhances the profession’s profile,” she said.

Mr Andrews has led the Actuaries Institute’s Climate Change Working Group, served as convenor of the General Insurance Practice Committee, Natural Disasters Working Group, Flood Working Group and Chief Examiner for General Insurance.

He leaves Finity at the end of 2019 ahead of a move to India, where he will work for an international insurer. He will be based in Bangalore and will be part of the insurer’s global climate team while mentoring and supporting the company’s emerging actuaries.

“India is a future powerhouse of actuarial expertise and I am looking forward to working in a dynamic country and having the opportunity to contribute to the management of the climate risks faced by a global insurer,” Mr Andrews said.

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Figure 1 – Key Observations from Winter and Spring 2018 Australian Actuaries Climate Index

The Australian Actuaries Climate Index, updated for the first time since its launch in late 2018, shows the number of extreme hot days was above historical levels in both Winter and Spring 2018, and portions of Australia remained extraordinarily dry showing distinct signs of drought.

The Index provides an objective measure of extreme weather conditions and sea levels across Australia and how these vary over time.

It is collated two months after the end of each season following the release of data by the Bureau of Meteorology.

The Index shows changes in the frequency (rate of occurrence) of extreme high and low temperatures, heavy precipitation, dry days, strong wind and changes in sea levels. These components have a strong correlation to risk, an area of expertise for actuaries.

Actuaries Institute chief executive Elayne Grace said the Australian Actuaries Climate Index was designed to show Australia’s policymakers and business leaders how the frequency of extremes, and hence risk, is changing. Extremes pose the greatest risks, in terms of the impact on people and businesses and, potentially, the greatest cost to the economy.

“Based on the readings, we recognise that climate change is expected to have major environmental, economic and social impacts, and it poses a serious risk to the industries that actuaries advise,” Ms Grace said. “We estimate annual natural peril cost to Australia of $11 billion to $12 billion, of which only 40% is insured. This figure includes public assets and the cost of intangible losses, such as mental health and family breakdowns, as a result of natural disasters.”

Although the six months were relatively benign overall, the Australian Actuaries Climate Index shows that the frequency of hot days in Winter and Spring was above historical levels, said Tim Andrews, a Principal at Finity Consulting and the lead author of the index. The reference period, or baseline, for the index is 1981 to 2010.

“In particular, Spring in 2018 was hot for parts of Northern Queensland, and the Index bears this out with a higher than average number of hot days in that region,” Mr Andrews said. “The Index also shows evidence of the drought impacting some parts of the east”.

The index also continues to show decreased winter rainfall in a number of the southern regions.

The key observations from the latest index update are illustrated in Figure 1 on page three.

The data, collated from the Bureau of Meteorology’s extensive network of weather stations and tide gauge facilities, is collected nationally and grouped into 12 climatologically consistent regions. Each season is compared to the same season in previous years, back to 1980, which shows how the extremes are trending over the long term.

Ms Grace said over time, the Index will help business better assess how weather extremes translate into financial risk. She said Australia’s regulators are already calling for greater risk disclosure from businesses.

In February, Australian Prudential Regulation Authority executive board member Geoff Summerhayes told a conference, “regulators’ current stance of merely encouraging climate- risk disclosure will inevitable harden towards making such disclosure mandatory.”

Speaking as the chair of the UN Sustainable Insurance Forum, in London, Mr Summerhayes said: “Although insurers are the most obviously exposed to the physical impacts of climate change through the potential for higher claims, the flow-on effects have the potential to harm every financial industry and impair global economic growth.”

He urged better disclosure by Australian businesses but also noted that there is a need for more robust data.

Mr Andrews, from Finity, warned the next update would capture data that reflects Australia’s horror summer of floods, fires and wildlife devastation.

“Recent events such as the floods in Townsville, the bushfires in Tasmania, and the fish die-offs in the Murray Darling Basin illustrate the impact that extreme weather conditions can have in Australia,” he said.

The Australian index was built following the establishment of a similar tool for Canada and the United States, supported by a number of actuarial groups including the American Academy of Actuaries and the Society of Actuaries.

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Tim Andrews

The Actuaries Institute has launched a climate index, an objective measure of extreme weather conditions and changes to sea levels, to help policymakers and Australia’s businesses assess how the frequency of weather extremes is changing over time.

The Australian Actuaries Climate Index, which includes a number of sub-indices, tracks changes in the frequency of extreme high and low temperatures, heavy precipitation, dry days, strong wind and changes in sea level, mainly concentrating on the 99th percentile of observations. The components of the index were chosen due to their link to risk, an area of expertise for actuaries, and because extremes have the greatest potential impact on people and, often, the largest cost to the economy.

The index is the culmination of an extensive research and implementation process. It is the result of consultation with Australia’s Bureau of Meteorology, Commonwealth Scientific and Industrial Research Organisation (CSIRO), leading insurance and natural hazard scientists and regulators.

“The index is designed to help us understand how extreme weather, and hence risk levels, may be shifting as a result of climate change,” said Tim Andrews, a Principal at Finity Consulting. Mr Andrews, who has 30-years of actuarial experience, collated the index, using data from the Bureau of Meteorology’s extensive network of weather stations and tide gauge facilities. The data was collected nationally and grouped into 12 climatically similar regions.

“This index is a very important piece of work for the Actuaries Institute,” said Institute President Barry Rafe. “Actuaries are skilled at summarising and presenting complex data, and the assessment and management of the financial consequences of risks.”

“This project aims to help big and small corporations better understand the changes in weather extremes across Australia. It is one way to bring science and business together.”

Actuaries Institute Chief Executive Elayne Grace said: “This work will assist businesses to assess and report risks from climate change, and Australians more generally will be able to look at the data and see what’s going on.”

Australian financial institutions can reference the index to help them meet their commitments to adopt international risk reporting measures, Ms Grace said. The Financial Stability Board’s Taskforce on Climate-Related Financial Disclosures in 2017 wrote recommendations for a single international cross-industry standard for disclosing those risks.

The Australian Prudential Regulation Authority (APRA), which last year warned that the risks of climate change were “foreseeable, material and actionable now”, has welcomed the new index.

APRA Executive Board Member Geoff Summerhayes said: “APRA has a longstanding working relationship with the Actuaries Institute, collaborating on financial risk metrics and standards. We believe this initiative is a positive step towards helping regulated entities to understand and manage the potential impact of climate risk on their businesses.”

Chief Executive Officer of the Investor Group on Climate Change, Emma Herd, said: “The effects of climate change are here and now, and getting worse.”

“Australian investors are looking for the tools they need to better assess and mitigate physical risks for their investments. The Australian Actuaries Climate Index is a welcome new tool for managing climate risk.”

The IGCC represents Australian and New Zealand institutional investors with around $2 trillion in funds under management, and others in the investment community concerned about the impact of climate change on investments. The very first Australian Actuaries Climate Index report, to be issued November 12, which covers the period 1981 to 2018, shows the frequency of extreme conditions in Autumn 2018 was higher than the historical extremes for Autumns in the baseline period from 1981-2010.

In fact, the frequency in the baseline period has been exceeded in every season but one since 2010. The results are compared to a 30-year reference period, mostly focusing on the 99th percentile of observations. The index will be updated each quarter.

The Australian index was built following the establishment of a similar tool in the United States and Canada that tracks different components to measure risk and climate change. That index, published quarterly, measures the frequency of extreme weather and the extent of sea level change. The US/Canada index is supported by a number of actuarial groups, including the American Academy of Actuaries and the Society of Actuaries.

The Actuaries Institute plans to develop more explicit measures of risk and the climate index represents the first phase of that work.

“This is a first step,” Ms Grace said. “We hope to build on this index by attaching risk data, such as damage to property and health statistics, in order to understand the relationship between weather extremes and risk, enabling more explicit risk indices to be developed.”

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