Climate change and sustainability: an actuarial risk management perspective
Climate risk poses significant challenges to socio-economic sustainability, yet the financial and insurance industries generally remain reactive, hindered by a limited understanding of climate impacts and inadequate modeling techniques. This thesis aims to study climate risk from an actuarial scienc...
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| Format: | Thesis-Doctor of Philosophy |
| Language: | English |
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Nanyang Technological University
2024
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| Online Access: | https://hdl.handle.net/10356/180071 |
| _version_ | 1826110876889907200 |
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| author | Xu, Yanbin |
| author2 | Zhu Wenjun |
| author_facet | Zhu Wenjun Xu, Yanbin |
| author_sort | Xu, Yanbin |
| collection | NTU |
| description | Climate risk poses significant challenges to socio-economic sustainability, yet the financial and insurance industries generally remain reactive, hindered by a limited understanding of climate impacts and inadequate modeling techniques. This thesis aims to study climate risk from an actuarial science perspective, enhancing our capabilities in modeling, mitigating, and adapting to these changes.
The first project in this thesis examines the agricultural industry, which is significantly impacted by climate change. I introduce a behavior-based machine learning approach to optimize risk pooling in area-yield insurance, addressing challenges such as moral hazard, high administrative costs, and data sparsity. By analyzing farming behavior under area-yield insurance contracts through a utility maximization framework and employing unsupervised spectral clustering, this study effectively reduces basis risk and enhances the sustainability of insurance programs.
The second project proposes a solution for the intensifying risk of climate-related floods. It develops a geo-hierarchical deep learning model for flood risk assessment that does not rely on high-resolution or hard-to-access data, making it particularly suitable for emerging markets with data limitation. This model aims to refine actuarial practices for flood insurance, improving predictive accuracy and economic efficiency.
Another challenge posed by climate risk is its disproportionate impact, which has widened the protection gap in highly exposed regions. The third project discusses a self-financing tax redistribution scheme under a private-public partnership framework to manage this climate risk-related protection gap across different risk regions. The model assesses the externalities involved in wealth transfers between moderate and high-risk areas, proposing solutions to mitigate negative impacts through effective policy interventions.
While the previous three projects focus on studying climate risk on the liability side of insurance companies, the final project extends the discussion to the asset side. I find that green assets exhibit stronger valuation resilience during the natural catastrophe events, underscoring the benefit of including them in the portfolios of insurance and other financial institutions. After addressing the endogeneity concerns, I identify market sentiment as the channel of such benefit. |
| first_indexed | 2024-10-01T02:41:41Z |
| format | Thesis-Doctor of Philosophy |
| id | ntu-10356/180071 |
| institution | Nanyang Technological University |
| language | English |
| last_indexed | 2025-03-09T10:10:42Z |
| publishDate | 2024 |
| publisher | Nanyang Technological University |
| record_format | dspace |
| spelling | ntu-10356/1800712024-10-07T01:58:13Z Climate change and sustainability: an actuarial risk management perspective Xu, Yanbin Zhu Wenjun Nanyang Business School Lysa Porth Ken Seng Tan wjzhu@ntu.edu.sg Business and Management Actuarial science Climate change Sustainability Agricultural insurance Flood insurance Private-public partnership Sustainable investing Climate risk poses significant challenges to socio-economic sustainability, yet the financial and insurance industries generally remain reactive, hindered by a limited understanding of climate impacts and inadequate modeling techniques. This thesis aims to study climate risk from an actuarial science perspective, enhancing our capabilities in modeling, mitigating, and adapting to these changes. The first project in this thesis examines the agricultural industry, which is significantly impacted by climate change. I introduce a behavior-based machine learning approach to optimize risk pooling in area-yield insurance, addressing challenges such as moral hazard, high administrative costs, and data sparsity. By analyzing farming behavior under area-yield insurance contracts through a utility maximization framework and employing unsupervised spectral clustering, this study effectively reduces basis risk and enhances the sustainability of insurance programs. The second project proposes a solution for the intensifying risk of climate-related floods. It develops a geo-hierarchical deep learning model for flood risk assessment that does not rely on high-resolution or hard-to-access data, making it particularly suitable for emerging markets with data limitation. This model aims to refine actuarial practices for flood insurance, improving predictive accuracy and economic efficiency. Another challenge posed by climate risk is its disproportionate impact, which has widened the protection gap in highly exposed regions. The third project discusses a self-financing tax redistribution scheme under a private-public partnership framework to manage this climate risk-related protection gap across different risk regions. The model assesses the externalities involved in wealth transfers between moderate and high-risk areas, proposing solutions to mitigate negative impacts through effective policy interventions. While the previous three projects focus on studying climate risk on the liability side of insurance companies, the final project extends the discussion to the asset side. I find that green assets exhibit stronger valuation resilience during the natural catastrophe events, underscoring the benefit of including them in the portfolios of insurance and other financial institutions. After addressing the endogeneity concerns, I identify market sentiment as the channel of such benefit. Doctor of Philosophy 2024-09-13T00:20:36Z 2024-09-13T00:20:36Z 2024 Thesis-Doctor of Philosophy Xu, Y. (2024). Climate change and sustainability: an actuarial risk management perspective. Doctoral thesis, Nanyang Technological University, Singapore. https://hdl.handle.net/10356/180071 https://hdl.handle.net/10356/180071 10.32657/10356/180071 en This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License (CC BY-NC 4.0). application/pdf Nanyang Technological University |
| spellingShingle | Business and Management Actuarial science Climate change Sustainability Agricultural insurance Flood insurance Private-public partnership Sustainable investing Xu, Yanbin Climate change and sustainability: an actuarial risk management perspective |
| title | Climate change and sustainability: an actuarial risk management perspective |
| title_full | Climate change and sustainability: an actuarial risk management perspective |
| title_fullStr | Climate change and sustainability: an actuarial risk management perspective |
| title_full_unstemmed | Climate change and sustainability: an actuarial risk management perspective |
| title_short | Climate change and sustainability: an actuarial risk management perspective |
| title_sort | climate change and sustainability an actuarial risk management perspective |
| topic | Business and Management Actuarial science Climate change Sustainability Agricultural insurance Flood insurance Private-public partnership Sustainable investing |
| url | https://hdl.handle.net/10356/180071 |
| work_keys_str_mv | AT xuyanbin climatechangeandsustainabilityanactuarialriskmanagementperspective |