Measuring and Modeling Climate Liability Risks

Background and Purpose

Risks from climate change are primarily in three forms: Physical Risks to property, life and health; Transitions Risks to business in an economic environment that is transitioning to a low carbon economy; and Liability Risks for being liable for compensation to a claimant who claims to have suffered losses from climate change and blames a responsible party for the losses. Physical and Transition risks have been extensively studied, but Liability risks have been studied much less so, especially in an actuarial context. The purpose of this research is to shed light on the current situation and develop a framework for future risk assessment, risk management, risk mitigation, and coverage of climate liability risks.

Research Objective

The Catastrophe & Climate Strategic Research Program is seeking researchers to study the landscape of private entity (not government / public entity) climate liability risk and develop a quantitative framework to assess and model climate liability risks for insurers (as well as potentially other private entities from an ERM perspective), resulting loss estimates, and techniques for pricing and reserving for these risks. The following are examples of proposed topics that may be addressed:

A survey of the landscape of lawsuits and current climate liability risks in the U.S. and Canada including, among other things, the sector types of private entities that are being held responsible for climate liability risks, and a discussion of the liability risk for companies which is being driven by carbon emissions.
A survey of insurance company policy types that are currently being offered to insure climate liability risks, including typical risk mitigation policy provisions and underwriting protocols.
A quantitative framework for models that covers climate related liability risks, including:

Scenarios (what would they look like?)
Stress tests (what would they look like?)
Liability exposure assessment approaches
Risk quantification techniques
Illustrative loss estimate development
Pricing and reserving techniques
Other risk management processes
Correlation with Physical Risks and Transition Risks

Methods of disclosures of the extent of these Liability Risks
Discussion of direct claims against insurers for failing to manage climate related liability risks which are impacting them.

Note that the list above is not meant to be exhaustive but merely examples of proposed topics that may be researched.

Proposal Requirements

To facilitate the evaluation of proposals, the following information should be submitted:

Resumes of the researcher(s), including any graduate student(s) expected to participate, indicating how their background, education and experience bear on their qualifications to undertake the research. If more than one researcher is involved, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted.
An outline of the approach to be used (e.g. literature search, model, etc.), emphasizing issues that require special consideration. Details should be given regarding the techniques to be used, collateral material to be consulted, and possible limitations of the analysis.
A description of the expected deliverables and any supporting data, tools or other resources.
Cost estimates for the research, including computer time, salaries, report preparation, material costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.

Please note that as a policy, the SOA Research Institute generally does not provide funding to cover academic institution overhead expenses.

As a guide for developing the project budget, please review the Historical Project Cost Guide (see Appendix)
A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions. The Catastrophe & Climate Strategic Research Program is interested in completing this project in a timely manner. Suggestions in the proposal for ensuring timely delivery, such as fee adjustments, are encouraged.
Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

Selection Process

The Catastrophe & Climate Strategic Research Program will appoint a Project Oversight Group (POG) to oversee the project. The Catastrophe & Climate Strategic Research Program is responsible for recommending the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the Catastrophe & Climate Strategic Research Program will make the final recommendation, subject to Society of Actuaries Research Institute (SOA) leadership approval. An SOA staff research actuary will provide staff actuarial support.

Questions

Any questions regarding this RFP should be directed to Research-CC@soa.org.

Notification of Intent to Submit Proposal

If you intend to submit a proposal, please email written notification by October 18, 2024, to Research-CC@soa.org.

Submission of Proposal

Please email your proposal to Research-CC@soa.org; proposals must be received no later than November 1, 2024. It is anticipated that all proposers will be informed of the status of their proposal by the end of November 2024.

Conditions

The selection of a proposal is conditioned upon and not considered final until a Letter of Agreement is executed by both the Society of Actuaries Research Institute and the researcher.

The Society of Actuaries Research Institute reserves the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available. The Society of Actuaries Research Institute also reserves the right to redirect the project as is deemed advisable.

The Society of Actuaries Research Institute plans to hold the copyright to the research and to publish the results with appropriate credit given to the researcher(s).

The Society of Actuaries Research Institute may choose to seek public exposure or media attention for the research. By submitting a proposal, you agree to cooperate with the Society of Actuaries Research Institute in publicizing or promoting the research and responding to media requests.

The Society of Actuaries may also choose to market and promote the research to members, candidates and other interested parties. You agree to perform promotional communication requested by the Society of Actuaries Research Institute, which may include, but is not limited to, leading a webcast on the research, presenting the research at an SOA meeting, and/or writing an article on the research for an SOA newsletter.

Conflict of Interest

You agree to disclose any of your material business, financial and organizational interests and affiliations which are or may be construed to be reasonably related to the interest, activities and programs of the Society of Actuaries Research Institute /sponsoring entity.

Appendix

The cost ranges below are intended as a guide for budgeting project costs for proposals in response to SOA Research Institute Request for Proposals (RFP). Please note these figures span the 33rd to 66th percentiles for all projects as well as projects that involve a specific approach (lit review, survey, etc.). They are based on historical costs over several recent years. Expected costs for some RFPs may fall outside these ranges depending on the nature of the work and resources required for completion.

All Contracted Projects

This category includes all contracted projects that the Institute has undertaken within the last several years.

The 33^rd-66^th percentile project costs range is $25,000 - $50,000.

Literature Reviews

This category includes projects that involved only a literature review or the cost for the portion of a larger project that included a literature review.

The 33^rd-66^th percentile project costs range is $15,000 - $20,000.

Surveys

This category includes all projects that had a survey as their primary component.

The 33^rd-66^th percentile project costs range is $28,000 - $55,000.