How Climate Modeling Can Mitigate Risks and Improve Resilience in the Construction Industry

How Climate Modeling Can Mitigate Risks and Improve Resilience in the Construction Industry
April 18, 2024 10 mins

How Climate Modeling Can Mitigate Risks and Improve Resilience in the Construction Industry

How Climate Modeling Can Mitigate Risks and Improve Resilience in the Construction Industry

In an era of escalating climate-related challenges, the construction industry is turning to advanced climate modeling to fortify its risk management strategies.

Key Takeaways
  1. Leveraging climate modeling is crucial for effective risk management at every phase of a construction project’s lifecycle.
  2. The application of advanced modeling helps mitigate risks and fosters resilience, enabling construction companies to optimize long-term project outcomes.
  3. Early implementation of climate models and professional guidance on their use is key to managing complex risks in construction projects.

In 2023, natural catastrophes (nat cats) impacted communities worldwide. Events, such as earthquakes, severe convective storms and catastrophic floods, disrupted project timelines and caused major financial losses for the construction industry. Compounded by record-breaking heatwaves, the urgency for risk management strategies focused on mitigating the effects of a changing climate has never been greater.

In response, construction companies are looking for insights about the climate’s effect on their projects. They are considering the tactical use of risk models to identify and quantify nat cat perils that could affect projects, impact design and construction decisions, as well as inform risk transfer strategies. 

Understanding the Differences between Catastrophe and Climate Models 

Catastrophe models use historical data to simulate thousands of scientifically probable events and provide a view of loss potential. Climate models, on the other hand, rely on extremely large scales across space and time, bringing global atmospheric and oceanic observations into simulations to show how changing environmental conditions may influence future weather or climate events.

Climate Modeling

Source: Using Climate Data for Better Business Decision

Applying Models in Construction Projects 

Integrating advanced catastrophe models and climate models into risk management frameworks will better equip construction businesses to anticipate and address the threats posed by natural disasters and climate change. Climate and catastrophe models specifically support the construction industry in the following areas:

  • Assessing Site Risk and Perils
    • Models aid in understanding the baseline risk of building in a certain geography, assessing current climate risks and their evolution throughout the construction lifecycle.  
    • They help determine a site's relative risk and identify potential perils from the early stages of project risk assessment.  
    • This includes region-specific risks, such as sea level rise for coastal projects and extreme heat for projects in heat-prone areas.  
  • Informed Decision-Making
    • By providing comprehensive insights, climate models facilitate informed decision-making during site selection and throughout the design and construction phases.  
    • They help identify physical measures that can mitigate risks and improve a project's resilience.  
    • A model’s real-time analytics can facilitate proactive responses to unfolding perils during construction, minimizing disruptions and financial losses.  
  • Long-Term Planning and Insurance Preparedness
    • Climate models evaluate risks decades into the future, aiding in long-term planning.  
    • They assist in understanding how hazards may impact structures over their entire lifespan, prompting early investments in risk mitigation, starting from the design phase. 
    • Modeling is also used in risk transfer, as insurance companies rely on sophisticated modeling tools for risk assessment and management. 
Quote icon

For a coastal project, looking at just the tides or sea levels is no longer sufficient. There needs to be a future-focused view over the lifetime of the project.

Megan Hart
U.S. Reinsurance Catastrophe Analytics, Managing Director

Employing Climate Models in Risk Transfer Strategies

Leveraging innovative modeling approaches plays a vital role in risk transfer strategies, allowing construction companies to quantify and mitigate potential losses.  

From an insurance perspective, climate-driven risk modeling has surged in importance, becoming a critical tool in evaluating project risk perception within the market. It is important that all project stakeholders understand the risks involved and assess their options for insuring, mitigating or transferring these risks to enhance project resilience. Weather events hold a prime spot in insurers' risk assessments, guiding decisions on project viability and coverage terms.  

Climate modeling also aids brokers in gauging risk capacity needs and optimizing outcomes, facilitating early collaboration with businesses during the design phase for proactive climate risk management and informed decision-making. This ensures resilient project execution from the start.

$380B

Global economic losses from natural disasters in 2023

Source: Aon’s 2024 Climate and Catastrophe Insights report

Learn More
Quote icon

When we’re talking to insurers about a project’s weather-related risks, we can articulate how these concerns have been at the forefront of the company's mind from an early design stage and how they’ve been addressed through risk mitigation measures.

Peter Rudd
Executive Director, International Construction and Chief Broking Officer, Construction & Infrastructure

Effective Approaches for Using Climate Models in Construction

As construction projects face complex risks, early implementation of climate models and ensuring professional guidance on their use will be key.  

Here are three effective climate modeling strategies that risk managers in construction can implement:

1. Seek expert advisory services. Collaborate with advisors offering innovative modeling techniques tailored to construction-specific challenges.  

2. Tailor modeling solutions to project phases. Employ tools that match modeling solutions with different project stages, ensuring comprehensive risk assessment. Gauge exposure in real-time, thereby enabling proactive risk management.

3. Embrace holistic modeling solutions. Select comprehensive models that provide both current and future perspectives on natural catastrophe and climate impacts. Opt for holistic climate risk programs to navigate the uncertainties of climate change, facilitating informed risk management decisions. 

Discover how risk analytics fit into a broader risk management strategy for the construction and infrastructure industry.

Aon’s Thought Leaders
  • Megan Hart
    U.S. Reinsurance Catastrophe Analytics, Managing Director
  • Liz Henderson
    Global Head of Climate Risk Advisory
  • Natalia Moudrak
    Head of North America, Aon Climate
  • Adam Podlaha
    Head of Impact Forecasting
  • Daniel Raizman
    U.S. Reinsurance Catastrophe Analytics, Senior Director
  • Peter Rudd
    Executive Director, International Construction and Chief Broking Officer, Construction & Infrastructure

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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