Catastrophe risk models as quantitative tools for climate change loss and damage: A demonstration for flood in Malawi, Vietnam, and the Philippines

Elizabeth Galloway, Ashleigh Massam, James Allard, Philip Oldham, Georgios Sarailidis, Jennifer Catto, Celine Germond-Duret, Paul Young

Climate change loss and damage is a critical part of the international climate policy framework,
addressing the residual climate impacts that cannot be avoided through mitigation or adaptation,
which disproportionately affect vulnerable communities with limited capacity to recover. Major gaps remain in quantifying loss and damage, including developing equitable, operational mechanisms for financing and redress. Here, our contribution is to show how catastrophe models, as commonly used to explore loss and damages in the insurance and reinsurance industries, can be used to calculate loss and damages in a climate policy sense, addressing this urgent quantification gap in international climate policy. We explore the impact of climate change on inland flood risk in three Global South regions (Chikwawa in Malawi, Hanoi in Vietnam, and Cagayan in the Philippines) and three exposure types (residential buildings, agricultural crops, and population) to demonstrate the ability and potential flexibility of catastrophe models to quantify impacts for both economic and non-economic loss and damage. We show that standard catastrophe model metrics can be used to quantify climate policy loss and damage and discuss how they can be used to guide and evaluate adaptation and disaster risk resilience measures. We also show how new metrics can be developed to better suit catastrophe models to this application, including through novel use of a relative wealth metric to explore a social vulnerability dimension. We also discuss and summarise the challenges that remain to be overcome, including sourcing high-quality exposure and vulnerability data and confronting the
deeply uncertain climate change information at the scales of interest for climate policy loss and damage. For the latter, we propose a “storylines” framework to tractably sample the uncertainty space. Progress in this area will need meaningful collaboration between stakeholders, developers, local experts, and vulnerable communities, to increase the quality of the data and ensure that the economic and non-economic losses are appropriately, legitimately, and justly chosen and quantified. Our key message is that users and developers of catastrophe models within (re)insurance can leverage use their tools and expertise to make much needed and meaningful contributions to the broad issues of climate change loss(es) and damage(s) (e.g., climate finance), but only through extensive collaboration outside of the industry.