PHYSICAL RISK
CLIMATE RISK METHODOLOGY IN MADRID
Our physical climate risk methodology is rooted on traditional natural catastrophe modeling for insurance combined with the latest climate science and projections. There are four fundamental components to a physical climate risk assessment:
HAZARD
EXPOSURE
VULNERABILITY
FINANCIAL RISK
Climate hazard datasets for both acute (floods, windstorms, wildfires…) and chronic hazards (increased temperatures, reduced water availability, rising sea levels…).
How the business or corporation is exposed through its assets (physical assets, debt securities, equity…) or value/supply chain.
The vulnerability component models the impact of climate hazards on the exposures (e.g. damage caused to a building by flooding).
Monetary estimates both at the asset and portfolio or corporation levels to provide quantitative risk metrics such as Value at Risk (VaR) or Expected Shortfall (ES).
EXPOSURE
The platform consolidates detailed information on assets at risk, such as buildings, agricultural areas, or infrastructure, including their descriptions, precise locations with longitude-latitude coordinates, total estimated values in euros, and other relevant asset-specific characteristics. This information is later used both by vulnerability and financial models to assess physical risk.
HAZARD
An inventory of standardized open-data readily accesible by the platform on the intensity and frequency of acute and chronic climate hazards, including projections for the different climate scenarios and time-horizo.
Coastal Flood
Events where sea or ocean water significantly rises or overflows, flooding areas typically dry. They occur due to extreme weather events like storms, cyclones, storm surges, tsunamis and gradual sea level increases.
Riverine Flood
These are excessive accumulations of water in dry areas, caused by heavy rains, snow-melt, river flooding, storms, cyclones, or dam breaches.
Windstorms
Strong winds and heavy rains. They can take the form of hurricanes, typhoons, or cyclones that form over warm tropical and subtropical waters, depending on the location.
Wildfire
Rapidly igniting and spreading, wildfires are fueled by dry conditions, wind, and extreme heat. They quickly devastate forests, grasslands and properties.
Chronic heat
Chronic heat refers to extended episodes of intense heat in a specific area, where temperatures during the day and night significantly exceed normal levels.
Drought
Droughts are extended dry periods with low rainfall impacting ecosystems, agriculture, water supply, and regional financial stability.
Subsidence and Landslide
Subsidence and landslides involve ground movement. Subsidence is the slow sinking of land due to natural or human activities, while landslides are rapid downhill movements of rock or soil triggered by external forces.
Water Stress
Water stress occurs when the demand for water exceeds the available supply, or when poor water quality restricts its usage. It results from factors like overpopulation, droughts, and inefficient water management, affecting agriculture and human access to clean water.
VULNERABILITY
Quantify the impact of hazard events on structures or assets, relating the intensity of the event with the damage or disruption caused. Several approaches to derive them:
- Empirical approach ‒ Vulnerability functions are constructed from historical data (usually post-event databases) using regression analysis over historical impacts.
- Analytical approach ‒ Simulate hazard events and their intensity and model projected impacts on physical grounds (e.g., projected structural reactions to physical forces).
Impacts resulting from vulnerability models can be used for building loss distributions and vulnerability-based risk scores.
Damage: 90%
Damage: 5%
Damage: 40%
Damage: 60%
Damage: 5%
What are Risk Scores?
FINANCIAL RISK
Probability distributions for the monetary impacts resulting from damage to physical assets or the interruption of cash flows.
The platform produces several risk metrics at the asset and portfolio/corporation level, such as Value at Risk (VAR) and Expected Shortfall (ES).
- ● RCP 8.5
- ● RCP 4.5
- ● RCP 2.6
- 60 M$
- 30 M$
- 10 M$
FAQs
Alpha-Klima combines empirical and analytical approaches to quantify vulnerability to climate hazards. We use historical data for past impacts and simulate future hazard events. Risk scores are then calculated based on intensity or vulnerability thresholds, with key financial metrics such as Value at Risk (VaR) and Expected Shortfall (ES) helping businesses estimate the financial impact of climate events on assets and cash flows.
Our platform consolidates detailed data on assets at risk, such as buildings, infrastructure, and agricultural areas. By mapping asset locations, values, and characteristics, we assess vulnerability and financial risk. This data helps businesses quantify their exposure to physical climate risks and support targeted resilience measures.
Alpha-Klima uses high-resolution, open-source datasets and also develops proprietary data layers to assess a wide range of climate hazards including floods, wildfires, droughts, and windstorms. We have produced detailed wildfire probability maps and are actively expanding our in-house data generation to cover flood risk, drought conditions, and storm impacts. Our models incorporate climate projections across various scenarios and time horizons, enabling businesses to anticipate risks with greater accuracy and adapt their operations accordingly.
Alpha-Klima’s methodology combines traditional natural catastrophe modeling with the latest climate science. It assesses four key components: hazard, exposure, vulnerability, and financial risk. We evaluate both acute risks like floods and windstorms, as well as chronic risks such as rising sea levels and temperature increases, using advanced analytics and standardized datasets to quantify potential impacts on physical assets and operations.
