The latest Moody’s Climate on Demand version 2 solution will now deliver a new and updated methodology designed for the development of climate risk scoring.
As 2023 progresses, there are many enhancements coming to Moody’s Climate on Demand. In this blog post, we’ll review the timeline for some of these developments during 2023 and beyond.
The overall objective that lies behind our new approach for the Moody’s Climate on Demand solution is to outline a simpler and more comprehensive materialization of the financial impact of climate risk, both today and in the future, taking into account the impact of climate change using Representative Concentration Pathways (RCP) scenarios with time horizons extending through to 2100.
This new modeling approach will combine three important Moody’s assets:
Climate and climate change risk modeling from RMS, widely used to price risk in the insurance industry and validated with 30 years of global insurance claims
This combination of assets acts as the basis for the most accurate view of climate risk available to banks, investors, asset managers, and corporates.
How are we incorporating these data sets and extending and developing the Moody’s Climate on Demand solution during 2023, and into the following year?
Let’s examine the key product development milestones:
First Quarter of 2023
We have now launched the first Moody’s Climate on Demand version 2 release, and have enhanced the risk scores for flood using a more granular 30-meter resolution, together with a comprehensive analysis of flood defenses and local drainage, and how these factors mitigate local flooding.
In the first quarter, Moody’s Climate on Demand risk scores will also include climate change scenarios (RCP4.5 and RCP8.5) to cover flood, heat stress, and wildfires risk scores through to the year 2100.
We will also preview a new edition of Climate on Demand called ‘Pro’ during quarter one. This preview version will help us to assess user feedback on the new capabilities coming soon to Moody’s Climate on Demand. We are still accepting applications for early access to this version. Simply reach out to us at firstname.lastname@example.org.
This preview will include:
User access to two new metrics through new APIs: financial metrics and impact scores, for flood, heat stress, hurricane and typhoon, sea level rise, water stress, wildfire, and earthquake. Simply put, these financial loss metrics deliver a financial loss estimate that accounts for an asset’s attributes and building type. Read more about these metrics later in this post in our second quarter update.
In addition to the present-day financial loss metrics and impact scores, this preview will also deliver climate change views on both metrics for both RCP4.5 and RCP8.5 scenarios.
Second Quarter of 2023
In our second quarter update to Moody’s Climate on Demand, we expect to make the Pro edition generally available with full application and API support.
The Pro edition will have finalized global coverage for risks including floods, heat stress, hurricane and typhoon, sea level rise, water stress, and wildfire, as well as earthquake, with the financial loss metrics and impact scores as well as climate change scenarios for both RCP4.5 and RCP8.5 through to 2100.
What are Impact Scores and Financial Loss Metrics in Moody’s Climate on Demand?
Financial loss metrics and impact scores build on top of the existing climate change risk scores within the Moody’s Climate on Demand Standard version and incorporate an understanding of exposures (building/asset characteristics) and vulnerability (damage susceptibility of building/asset), as every building or business will experience the loss from a hazard in a different way.
For example, during Hurricane Michael in 2018, the Florida Panhandle saw winds of up to 160 miles per hour (257 kilometers per hour). Even when two buildings experience the same hazards such as strong winds from a Category 5 hurricane, a building with defenses or built to new construction codes may only experience minor damage while others may become totally unusable.
The house shown in the picture below located in Mexico Beach, Florida, was built to withstand such destructive winds. Knowing these exposure details can help assess and get an accurate picture of the loss, and impact in financial terms.
Impact scores and financial loss metrics provide an indication of the relative risk of an asset on the basis of damage and loss, not just the hazard component of risk. Calculating loss in financial terms may be tricky of course. How does one even know these estimates are accurate?
Moody’s Climate on Demand carries a unique advantage here: Moody’s RMS has been providing pricing and portfolio management models to the insurance industry for over three decades and validating these models with insurance loss experience (from US$100s billions of claims data) from partners from Asia Pacific to the Americas and Europe.
The new financial loss metrics and impact scores will combine the experience from these widely used RMS risk models and include the effect of downtime and disruption experienced by businesses following major disasters. Impact scores also distinguish between commercial, industrial, residential property, and different business types.
Moody’s Climate on Demand impact scores and financial loss metrics also provide a most-likely exposure for any ‘unknown’ property type based on their location.
Impact scores, like risk scores, are scores ranging from zero to one hundred and measure the relative risk impact. Our financial metric provides the average annual damage (AAD), the long-term expected loss per year, averaged over many years along with a standard deviation.
The standard deviation is a measure of volatility in the AAD each year. This combination of AAD and standard deviation accounts for smaller short-term and larger losses that occur more infrequently with their variabilities.
Third Quarter of 2023 and Beyond
In the last two quarters of 2023, we expect to update many additional features and data used on the Moody’s Climate on Demand Standard and Pro editions.
Here are some of the additions under consideration today:
Expansion of the range of perils, e.g. windstorms, covered by climate change loss models
Expansion of the available financial impact metrics, including business interruption and other tail risk assessment
Inclusion of additional location-specific exposure and vulnerability elements, e.g. construction type, to enhance the accuracy of loss metrics and impact scores
Updated sovereign and sub-sovereign scores for understanding regional benchmarks for risk and impact scores
Expanded coverage and features for public and private company scores incorporating impact scores, financial loss metrics, and climate scenarios
Event Response footprints for unfolding events, for both replaying past events over a property portfolio and for understanding losses during unfolding events in real-time
Of course, it is important to note that this isn’t an exhaustive list of all the capabilities we are working on as of today, but it does cover the top items. We will have more detailed blog posts with overviews of the updates that we deliver each quarter as they arrive.
In addition, we continuously tune our product roadmap based on market needs and customer feedback, and the information regarding products, features, specifications and functionality in Moody’s and Moody's RMS product roadmaps is intended to outline the general product direction rather than offering any guarantee.
Moody’s RMS reserve the right to change the development, release, and timing of features and functionality discussed in our product roadmap at any time.
Understand Physical Climate Risk: Introducing Moody’s Climate on Demand Version 2
About The Author
Product Manager, Data Product Management
Colin is a product manager with the data product management team, serving as product owner for Moody's Climate on Demand and other physical climate change risk data products with Moody’s RMS.
He has been working in the physical climate risk space since 2015, serving as Four Twenty-Seven’s Chief Operating Officer prior to being acquired by Moody’s in 2019. Colin has held multiple roles with Moody’s and RMS, overseeing the development and maintenance of climate physical risk products for corporate and financial institutions.
Colin has a master’s degree in Development Practice from the University of California, Berkeley, and a bachelor’s degree in mathematics from the University of Massachusetts.
About The Author
Product Manager, Data Product Management
Josh is a product manager with the data product management team, responsible for Climate on Demand and other physical climate change risk data products with Moody’s RMS.
He has been working in the physical climate risk space since 2016 with Moody’s and RMS, first developing models for risk assessment, and now within the product management organization.
Josh has a master’s degree in Climate and Society from Columbia University, and a bachelor’s degree in meteorology and applied mathematics from the University of Miami.
About The Author
Executive Vice President
Cihan Biyikoglu is the Executive Vice President, Product for Moody's RMS, responsible for product management across the full suite of Moody's RMS models and risk management tools. He has extensive experience in leading product management for innovative machine learning and big data analytics solutions at Fortune 500 companies over the last 20 years.
As a former Vice President of Product at Databricks and Redis Labs, Cihan both developed the product strategy and road map for open-source technologies such as Apache Spark and Redis and respective enterprise offerings in the public and private cloud platforms.
Cihan also worked on products at Microsoft, Couchbase, and Twitter, where he focused on on-premises and cloud offerings in the data and analytics space. At Microsoft, Cihan focused on the incubation of the Azure Cloud Platform in its early days and the SQL Server product line, both of which have grown to multi-billion-dollar businesses for Microsoft.
Cihan holds a number of patents in the data management and analytics space, and he has a master’s degree in database systems and a bachelor’s degree in computer engineering.