The truth about climate change risk

There’s no doubt the topic of climate change can be polarising — will it result in more houses being lost to bushfires? Will there be more tropical cyclones, will there be bigger floods? 

According to Ryan Springall, General Manager of Insurance, Banking and Capital at Australia-based catastrophe modelling specialist Risk Frontiers, it’s far from that simple.

He says understanding the degree to which climate change will contribute to an increase in the severity of extreme weather that leads to natural disaster losses is a significant challenge.

‘Capabilities exist to provide advice around the projected change in climate variables, but the real task lies in quantifying the effects of these on organisations,’ Springall says.

To that end, Risk Frontiers ‘provides an objective view of the impact climate change will have on physical risk in Australia’.

MAKING BETTER DECISIONS

With ten years in reinsurance under his belt, Springall understands how risk is traded globally.  

His Risk Frontiers role involves bringing the company’s suite of solutions to the industry to enable better decision making in terms of natural and man-made disasters and helping to promote conversations with domestic and international reinsurance markets.

‘We strike a balance between being scientifically rigorous and user friendly, because our work is highly technical,’ he says.

‘Much of what we do is peer reviewed – either internally or externally – and backed by science, but it is also commercially relatable. 

‘We are academically oriented and curious, but our solutions must be useful to people in the industry, and we are very fortunate to have great support though the major insurers and brokers.’

LEADING THE CONVERSATION

Springall makes no bones about the fact that he wants to see Risk Frontiers unswervingly on the radar both locally and overseas as its work continues across all the types of risk facing insurers, businesses and governments.

In terms of climate change science and translating it, he says Risk Frontiers’ strength lies in its staff and close relationships with prominent people in academia, including for example, being a partner organisation of the Australian Research Council (ARC) Centre of Excellence for Climate Extremes. 

‘When it comes to climate change, we have relationships with, and access to, the best scientists in the country,’ Springall says.

‘We advise industry on what it should be talking and thinking about regarding climate change risk.

‘And more often than not, resilience is about adaptation and mitigation, not just immediately switching off all greenhouse gas-emissions.’

REAL-WORLD APPLICATIONS

Springall says the confidence to bring together learnings from across his diverse career is the achievement he is most proud of. 

While finishing a PhD in theoretical physics, Springall joined the Australian Department of Defence in an intelligence role involving the counterproliferation of weapons of mass destruction and global security issues. 

Despite the significant perks of such a job, he decided to join the private sector and was investigating the banking and hedge fund industries, when he stumbled across reinsurance and catastrophe modelling. 

The real-world application of science, mathematics and relationships required for an insurance career was extremely attractive to him. 

COMBINING TECHNICAL WITH COMMERCIAL 

Having started as a reinsurance broker with Aon in Sydney, Springall moved to Melbourne and later relocated to Tokyo where he worked as a global client manager for five years.  

The opportunity to contribute to Risk Frontiers was exciting and proved a good fit for him.

Risk Frontiers, which started its life at Macquarie University more than 25 years ago, has been a private research and development company for the past few years.

As a leader at the organisation, Springall relishes the challenge of applying his commercial acumen with technical expertise and relationship building skills.
‘Relationships are a critical component of reinsurance,’ he says. 

‘A lot of business is still transacted face-to-face which means that the important element of trust is always there alongside the prospect of very large claims needing to be paid.’

CULTURAL SENSITIVITY

‘Overlayed with that, when I moved to Japan, I had to execute in a foreign country while being sensitive to the way that country does business. I really had to get the cultural element right.

‘For example, in Japan, the concept of nemawashi, or “laying the ground-work” involves consulting all elements of a business to get buy-in for a project before proceeding.

‘To outside observers, it can seem like making decisions takes a long time. Patience is really important.’

Springall says it’s not his job to tell highly technical and energetic people at Risk Frontiers what to do but to guide them in the right direction.

‘It can be easy to micromanage when you feel a project’s at risk, but you’ve really got to back the team by providing a clear vision about what you want and then then let them solve the problem the way they think is best.

‘They’re the ones seeing the data, they really want to succeed and deliver for the organisation and the client.

‘You need to give people ownership of their work and always keep an open door in case they need to talk about things,’ he advises.

A TOPIC OTHER THAN COVID-19

At the recent ANZIIF webinar, Allocating Capital for Climate Extremes, Springall helped participants understand climate change in terms of the insurance context.

He was also pleased to talk about something other than the Coronavirus. 

‘In terms of risk, it’s important to understand the difference between the discussion on climate change and, for example, the discussion about earthquakes,’ he explains. 

‘Climate change is a global issue, so it’s systemic. That means Australia (and all other countries) are exposed to cascading failures from the manifestations of climate change in other parts of the world. 

UNDERSTANDING GLOBAL RISK FINANCING

‘So the first point to appreciate is how global risk financing occurs and the concept of diversification.

‘In terms of climate change, hurricanes in the United States could have just as big an impact on Australian risk financing as local bushfires. That’s because we rely on global capital to finance risk.’

Will climate change make insurance unaffordable? Springall says the short answer is ‘no’. 

‘If you look at  the data on natural disasters, there’s no major trend on insurance affordability that points to climate change having an adverse outsized impact when considered in conjunction with changes in wealth, where we choose to live, how we decide to build our homes and the cost of financing them,’ he argues. 

‘Climate change will add to the discussion, and it’s complicated, but I don’t think there will be a point where climate change on its own will mean that any insurance cover becomes unaffordable. 

WALKING THE WALK

He adds that insurers who missed the webinar should look out for the podcast version on the Members Centre in a month or so.

'It's important insurers and brokers continue their education and discussion in the industry around what climate change means for the industry.

‘It’s also important to have a clear understanding of the issues when talking to potential clients about the actual impact of climate change on their risk profile, versus the other risks out there that all individuals and businesses face,’ he says.

SETTING THE AGENDA

‘One genuine observation that I have as a professional that’s worked overseas and had a lot of international conversations, is that the Australian industry is really leading the world in terms of understanding climate change impacts.

‘Maybe that’s through necessity, or because Australia is so exposed to the climate, but it would be great if we could continue leading the way, because the rest of the world is really looking at what’s happening here and observing the strategies we choose to implement.’