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The Economics of Climate Adaptation (ECA) Methodology: Application and a Case Study of New York City Megan E. Linkin 1, Mark D. Way 1, David N. Bresch.

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Presentation on theme: "The Economics of Climate Adaptation (ECA) Methodology: Application and a Case Study of New York City Megan E. Linkin 1, Mark D. Way 1, David N. Bresch."— Presentation transcript:

1 The Economics of Climate Adaptation (ECA) Methodology: Application and a Case Study of New York City Megan E. Linkin 1, Mark D. Way 1, David N. Bresch 2 and Lea Mueller 2 Presented at the US-UK Workshop on Climate Change Adaptation Georgia Tech, February Swiss Re America Holding Company, Armonk, NY 2 Swiss Reinsurance Company Ltd., Zurich, Switzerland

2 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Introduction 2

3 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Natural catastrophe risk is the core driver of the property reinsurance business. Our core business is natural catastrophe oriented – It is important for us to understand risk completely as possible The historical record does not provide a large enough sample of events to determine true or future hazard. – Must rely on simulations of physically possible events not in the historical record to understand risk landscape Real non-life premium growth in emerging markets expected to be near 8% in 2014 (Swiss Re). – Enhanced understanding of extreme weather events in areas historically under-observed Climate change alters to the risk landscape through a variety in potential shifts in the frequency and severity of events dependent upon hazard and region. – Without shifts in storm frequency, sea level rise alone will change coastal flood probabilities Increasing demand for parametric insurance products which settle on event, not loss, characteristics. – Near real time deterministic model simulation is an event settlement option Our interest in weather, climate and modeling 3

4 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Upward trend in magnitude of annual losses – Between 1970 and 1979, the annual average economic loss was USD 6.4 billion – Between 2000 and 2012, the annual average economic loss was USD billion Increasing gap between total economic loss and insured loss – Between 1970 and 1979, 54% of the total loss was covered by insurance – Between 2000 and 2012, 37% of the total loss was covered by insurance Weather-Related Economic and Insured Losses (2012 USD) 4 Source: Swiss Re Economic Research and Consulting

5 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Cities at Risk Swiss Re's Mind the Risk report 5 Currently, 1.7 billion people (25% of global population) reside in major metropolitan areas Major cities contribute USD 34 trillion, or 50%, to the global GDP. New York City: Most storm-surge exposed US city, with 1.1 million people potentially affected by an extreme storm surge event. The UN estimates that by 2050, 6.3 billion people will reside in cities. High emissions scenarios from the IPCC AR5 predict a global sea level rise of cm. – Increased sea level will change the frequency of floods and storm surges. Therefore, it is imperative that cities, states and nations globally understand the risk posed by natural catastrophes, how the risk landscape will change under climate change and take the necessary steps to protect infrastructure, physical structures and citizens. Source: Swiss Re Catnet

6 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Assess total climate risk – Today's climate risk – Future climate change scenarios Using Swiss Re's proprietary catastrophe models, current and future hazards are translated to economic loss potential Various resiliency strategies can be implemented to demonstrate savings of each measure considered. Powerful tool to allow decision makers to understand current and future risk and benefit of long term action Economics of Climate Adaptation (ECA) Comprehensive Risk Assessment, from Hazard to Cost 6

7 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Swiss Re's proprietary model considers four elements that determine natural catastrophe loss potential What exactly is covered... where... and how? HazardVulnerability Value distribution Cover conditions Sums insured Cover limits Deductibles Exclusions etc. Example Hurricane “Charley” Aug 2004 How often / how strong? How well built and protected?

8 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA The working group studied 18 regions with diverse climate hazards 8 Anguilla, Bermuda, Barbados, Jamaica, Antigua and Barbuda, St. Lucia, Dominica US Gulf coast New York Economics of Climate Adaptation (ECA) Working Group, a partnership between the Global Environment Facility, McKinsey & Company, Swiss Re, the Rockefeller Foundation, ClimateWorks Foundation, the European Commission, and Standard Chartered Bank.

9 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA The City of New York: A Case Study 9

10 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA 10 Hurricane Sandy Facts and figures: Loss Estimates Source: AON Benfield, PCS, FEMA

11 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA According to government officials: Residential damage is estimated at USD 9.7 billion, with over 100 homes burned in Breezy Point. The MTA sustained USD 5 billion in damage and lost revenue, with the South Ferry – Whitehall St. station requiring USD 600 million to repair. Historic Rye Playland lost its log flume ride and estimates USD12 million in damages. Total damages in New York City estimated at USD 19 billion. – USD 13 billion in physical damage – USD 6 billion in lost economic productivity 11 The Aftermath of Superstorm Sandy New York Breezy Point, NY – October 30, 2012 Source: New York Daily News

12 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA According to government officials: Residential damage is estimated at USD 9.7 billion, with over 100 homes burned in Breezy Point. The MTA sustained USD 5 billion in damage and lost revenue, with the South Ferry – Whitehall St. station requiring USD 600 million to repair. Historic Rye Playland lost its log flume ride and estimates USD12 million in damages. Total damages in New York City estimated at USD 19 billion. – USD 13 billion in physical damage – USD 6 billion in lost economic productivity 12 The Aftermath of Superstorm Sandy New York Breezy Point, NY – October 30, 2012 Source: New York Daily News

13 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Created by Mayor Michael Bloomberg to address how to create a more resilient New York City in the wake of Hurricane Sandy, with a long-term focus on preparing for and protecting against the impacts of climate change A final report, released in June, presents actionable recommendations both for rebuilding the communities impacted by Sandy and increasing the resilience of infrastructure and buildings citywide. The NYC Special Initiative for Rebuilding and Resiliency (SIRR) 13 Source: Iwan Baan Photography

14 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Hurricane models: Swiss Re has built a probabilistic tropical cyclone model based on robust historical data. Swiss Re uses data from the National Hurricane Center that includes nearly 1,200 observed tropical storms and hurricanes in the Atlantic Basin between 1891 and Climate change scenarios: The City provided Swiss Re with guidance on projected sea level rise in the 2020s and 2050s, based on work of the New York Panel on Climate Change (NPCC). Specifically, the City instructed Swiss Re to assume of sea level rise by the 2020s, and the 2050s, based on the NPCC’s climate projections. In addition, Swiss Re adjusted the future frequency of different categories of hurricanes (tropical storm through category 5) based on academic research. City-level asset and economic activity: The consultants worked closely with City agencies to develop a working model of asset value divided into several categories, including, among other things, buildings, transportation, telecommunications, and utilities. These asset values were further broken down by zip code as was the city’s economic activity (gross city product). The Economics of Climate Adaptation Methodology for the City of New York 14

15 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Swiss Re uses HURDAT Best Track data set from National Hurricane Center in Miami (includes all tropical cyclones in Atlantic Basin between 1851 and 2008) Each historical track perturbed 199 times via direct random walk process 200 tracks result in a track set containing 223,400 tropical cyclones Holland model, coupled with a roughness layer, produces a wind field for each track SLOSH model, coupled to a digital elevation model, calculates storm surge for each track, using atmospheric pressure, forward speed, size, angle of landfall, and track data Approach did not consider Nor’easters Swiss Re's Probabilistic Tropical Cyclone Model 15

16 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Quantity s2050s USD 19 billion 70 years 60 years 50 years 70 year return period loss USD 19 billion USD 35 billion USD 90 billion Results Loss Frequency Curve 16 Source: A Stronger, More Resilient New York

17 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Average annual impact to assets and GDP Some years will have a single or multiple large losses, other years will be zero. Today: USD 1.7 billion 2050s: USD 4.4 billion – USD 1.5 billion from sea level rise – USD 1.2 billion from changes in storm frequency Results Annual Expected Loss (AEL) 17 Source: A Stronger, More Resilient New York

18 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Current drivers of loss: east and south shores of Staten Island, southern Brooklyn and Queens, Brooklyn and Queens waterfront and southern Manhattan. Under future scenarios: Same geographic regions, plus northern Queens and the Bronx Under 2050s scenario: 400% increase in ZIP codes which have an AEL of USD 30 million Results Annual Expected Loss by ZIP code 18 Source: A Stronger, More Resilient New York

19 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Model can be used to assess the financial savings from various mitigation efforts. Combining the modeled savings with cost estimates can provide helpful guidance for decision makers when selecting which efforts to focus on. NYC decided to focus on efforts where the cost-benefit ratio was less than 2. Results Cost-Benefit Analysis 19 Source: A Stronger, More Resilient New York

20 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Increases in population in urban areas requires cities have a comprehensive understanding of risks posed by the current climate. Climate change is set to alter the risk landscape, and these changes coupled with a continually growing population, necessitates planning for future risks today. The ECA methodology developed by Swiss Re provides policy makers and decision makers with an end to end risk analysis, from hazard to costs. The ECA methodology was successfully deployed for the City of New York, and played an important role in shaping the City's fortification and rebuilding plans. Concluding Thoughts 20

21 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Thank You 21 For more information regarding the ECA studies and the Mind the Risk report, please visit To read the SIRR report A Stronger, More Resilient New York, please visit

22 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA 22

23 M. Linkin, Swiss Re | 7 February 2014 | US-UK Workshop on CCA Legal notice 23 ©2014 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re. The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage or loss resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or consequential loss relating to this presentation.


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