Accelerating Clients' Climate Resiliency and Response

Today’s economy is overexposed to climate risk, and the immediacy and scale of the climate change challenge is pushing Aon and others to set a new pace for progress in risk solutions and decarbonization efforts. In 2021, we continued our work to create opportunities for economies and societies to thrive amid climate risk, including collaborations with clients, governments and academia. Responding to that challenge requires us to work on two fronts: risk transfer and risk mitigation. At the same time, we are also helping our clients with the shift to net-zero, beginning with identifying capital to invest in decarbonization technologies.

 

Risk Transfer Innovation

Our clients — and societies across the globe — need to find ways to measure the threat and formulate the right response to climate change. Pricing and transferring risk will allow them to grow while allocating investment to long-term resilience strategies. We are developing leading, targeted solutions with alternative structures such as catastrophe bonds and other insurancelinked securities. In 2021 alone, we advised $13 billion in issuances of insurance-linked securities, helping mitigate economic challenges as natural disasters increase in frequency and severity.

Impact story:
Collaborating to close the protection gap and strengthen resilience against natural disasters

In 2021, Aon, USAID and the World Bank teamed up to aid Jamaica in responding to hurricane risk through catastrophe coverage. Jamaica and other areas in the Caribbean have experienced devastating hurricanes that caused significant damage to infrastructure, businesses and homes, as well as residents’ physical safety. For Jamaica, building resilience and the ability to rapidly respond to severe weather events requires financial protection. These jointly developed catastrophe bonds will deliver $185 million in immediate liquidity in the event of a natural disaster. The funds provide immediate humanitarian relief and allow communities to immediately begin rebuilding the infrastructure on which their people depend.

 

Proactive Climate Action Strategies

Extending our impact beyond risk transfer solutions, we are developing and strengthening proprietary tools and leading cross-sector collaborations to pave the way for more proactive climate decisions and resilience on an accelerated timetable.

For instance, our Weather Solution insurance cover uses parametric triggers to bridge those gaps and provide coverage for clients impacted by natural disasters. This innovative approach to environmental threats considers factors like wave height, river depth and hydrological triggers for clients in flood-prone areas. Based on these findings, Aon recently worked with a client to secure coverage for any category 2 or above hurricane within 50 kilometers of their two major facilities. Responsive solutions like this give clients the support they need in the face of the developing risks and costs of climate change.

Our other leading approaches around assessing climate risk include:

  • Impact Forecasting — Our premier catastrophe model development center of excellence helps clients understand their climate risk through physical and financial risk modeling and analysis. Impact Forecasting brings together seismologists, meteorologists, hydrologists, engineers, mathematicians, geographic risk experts, geographers, finance, risk management and insurance professionals and serves clients of all types.
  • Impact on Demand — Aon’s digital analytics platform for efficiently and accurately visualizing and quantifying risk exposures. The platform helps companies quickly identify risks and create reports that aid in better climate and ESG decisions.
  • Climate Maturity Curve — An illustrative tool for companies to assess where they are in their journey toward a robust climate strategy. The tool serves as a foundational element for climate action, including identifying the greatest areas of risk and opportunity to prioritize.
  • Physical and Transition Risk Quantification — Using our expertise and a toolkit of modeling capabilities, catastrophe and climate models and partnerships with third party data providers, Aon quantifies the impact climate change scenarios will have on businesses. The analysis considers several different Representative Concentration Pathway (RCP) scenarios that could make the impact more or less severe.

Additionally, Aon is playing a key role in convening knowledge, research and science from premier institutions and bringing it to the business sector. “Our reinsurance colleagues are partnering with several notable academic institutions to build forwardlooking climate risk into their natural hazard modeling capabilities,” says Richard Dudley, global head of climate strategy.

For example, our partnership with Columbia University brings leading academic climate research to our work modeling weather risk exposures, particularly for tropical cyclone perils. In doing so, we’re seeking to better quantify the climate risk in insurers’ and our clients’ portfolios and inform better decisions — in pricing, investments and exposure management. Rather than work with fragmented data and varying research studies, we can create consensus and consistency. This enables us to better serve our clients and calibrate our climate solutions to the most realistic future scenarios. Looking forward, we expect to expand this partnership to other weather events and geographies.