A survey of actuarial climate indices: a new index for France and its insurance applications

Abstract

Abstract Climate change is often defined as the long-term fluctuations in climate patterns affecting the planet. Among its observed effects are: increased average temperatures and higher frequency/severity of extreme weather events, such as heat waves, droughts, floods, or windstorms. These new climate risks produce an incremental effect on the frequency/severity of claims in several insurance branches. To help insurers and pension managers model climate risks, Canadian and American actuaries created the Actuaries Climate Index Superscript normal upper T normal upper M T M $^{\mathrm{TM}}$ (ACI). It was followed by similar indices from climate data from Australia, Portugal, Spain, and Italy. The results obtained with these indices are surveyed here first. Then this North American ACI methodology is applied to climate data from France to correct and update the French Actuarial Climate Index (FACI), defined in Garrido et al. (2023, 2024). First, we review the methodology and data used in FACI and study with it the impact of climate change in France, including high-resolution analyses, per climate variable, season, and region. The survey is complemented with an international comparison of the available indices, showing how this new FACI constitutes one more step toward the definition of a European index and further setting climate change as an emerging large-scale risk. The article concludes with an application of FACI to design a parametric nonlife insurance coverage.