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As catastrophe models increasingly incorporate “climate conditioning,” questions are growing about what those adjustments actually contribute to near-term risk assessment, pricing, and capital decisions.
The Risky Science Podcast Roger Pielke Jr. about the growing gap between climate modeling and the way catastrophe risk is managed in insurance and reinsurance markets.
Pielke (often a controversial figure) argues that much of today’s climate-risk analytics ecosystem is misaligned with how risk decisions are actually made. Climate models, he says, are designed to project long-term outcomes under scenario assumptions extending decades into the future.
Catastrophe models, by contrast, are built to estimate loss probabilities over annual or near-term horizons by integrating hazard, exposure, and vulnerability. Conflating the two, he says, introduces uncertainty without improving decision quality.
A central theme of the discussion is scale. For most natural hazards (hurricanes, floods, hail, and tornadoes) Pielke emphasizes that the signal of human-caused climate change is expected to emerge later this century, not at the annual timeframes relevant for insurance contracts. Short-term climate variability, such as the El Niño–Southern Oscillation, has a far larger and more observable impact on year-to-year loss outcomes than long-range climate projections.
We also discuss the frequent use of rising economic losses as evidence of changing hazard. Pielke points instead to exposure and vulnerability as the dominant drivers, citing decades of research showing that increased concentration of people and property in high-risk areas explains most loss growth.
Rather than focusing on precise prediction, Pielke advocates for robustness: stress testing portfolios against extreme but plausible loss scenarios and designing decision processes that remain resilient across a wide range of possible futures.
Whether one agrees with his conclusions or not, the discussion raises important questions about how models are being used—and sometimes overextended—at the intersection of climate science, catastrophe risk, and financial decision-making
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