Novel use of climate model data for deriving future flood risk underwriting and risk selection data – A Hong Kong Case Study

The re/insurance, banking and mortgage sectors play an essential role in facilitating economic stability. As climate change-related financial risks increase, there has long been a need for tools that contribute to the global industry’s current and future flood risk resiliency. Recognising this gap, JBA Risk Management has pioneered use of climate model data for rapidly deriving future flood risk metrics to support risk-reflective pricing strategies and mortgage analysis for Hong Kong.

JBA’s established method uses daily temporal resolution precipitation and surface air temperature Regional Climate Model (RCM) data from the Earth System Grid Federation’s CORDEX experiment. Historical and future period RCM data were processed for Representative Concentration Pathways (RCPs) 2.6 and 8.6, and time horizons 2046-2050 and 2070-2080 and used to develop fluvial and pluvial hydrological model change factors for Hong Kong. These change factors were applied to baseline fluvial and pluvial flood depths and extents, extracted from JBA’s high resolution 30m Hong Kong Flood Map. From these, potential changes in flood event frequency and severity for each RCP and time horizon combination were estimated.

The unique flood frequency and severity profiles for each flood type were then analysed with customised vulnerability functions, linking water depth to expected damage over time for residential and commercial building risks. This resulted in quantitative fluvial and pluvial flood risk metrics for Hong Kong.

Newly released, Hong Kong Climate Change Pricing Data is already in use by financial institutions. When combined with property total sum insured data, this dataset provides the annualised cost of flood damage for a range of future climate scenarios. For the first time, our industry has a tool to quantify baseline and future flood risk and set risk-reflective pricing for Hong Kong portfolios.

JBA’s method is adaptable for global use and underwriting tools are already available for the UK and Australia with the aim of improving future financial flood risk mitigation and management. This presentation will outline the method, provide a comparison of baseline and climate change flood impacts for Hong Kong and discuss the wider implications for our scientific and financial industries.