On the definition of an actuarial climate index for the Iberian Peninsula

Abstract

Climate change is usually defined as a long-term shift in climate patterns affecting the planet globally. The main consequences of climate change are a rise in the average temperatures in many regions, and an increase in the frequency and intensity of extreme weather events, such as floods, droughts, storms, or hurricanes. Climate change is also associated with a rise in sea levels, more frequent severe wildfires, a loss of biodiversity, and many other disrupting events with serious economic impacts. This new set of risks is increasingly affecting both the frequency and severity of claims in different insurance branches. In order to help insurance companies to predict and manage these new risks, actuaries have defined the Actuaries Climate Index (ACI), which combines information from several important weather variables from the historical record of the United States and Canada. The ACI shows a significant increasing trend over the years. It is important to note, however, that the impact of climate change is not the same in all parts of the planet: different regions and countries are affected in different ways. Therefore, it is important to check if the ACI is as useful to assess climate risk outside the United States and Canada. In this paper, we follow the ACI methodology to build an actuarial climate index for the Iberian Peninsula, which we call Iberian Actuarial Climate Index (IACI). The paper reviews the methodology and the data used to obtain the IACI and studies the impact of climate change in the Iberian Peninsula.