THE EVOLUTION OF UNDERWRITING IN THE CONTEXT OF CLIMATE CHANGE: A METHODOLOGY FOR ADAPTING AN INSURANCE COMPANY’S PRICING POLICY

Abstract

The article examines the transformation of approaches to underwriting under conditions of increasing climate risks. It is demonstrated that the evolution of underwriting in the context of climate change has a systemic nature. The direction of the transformation of approaches to risk assessment under climate change has been identified – from retrospective statistical extrapolation to a scenario-oriented, geospatially detailed, and stochastically adaptive approach. It is proven that traditional actuarial methods based solely on historical data show limited predictive power in an environment of nonlinear climate trends, increasing frequency of extreme events, and strengthening correlations between risks. The necessity of modernizing insurers’ tariff policies considering the growing frequency and intensity of extreme weather events is justified, particularly through integrating catastrophe modeling and scenario-stress analysis based on climate trajectories. A model for adapting the tariff policy of insurance companies is proposed, based on the integration of climate scenarios, regional risk differentiation, and dynamic pricing. The developed economic-mathematical model of the optimal tariff formalizes the dependence of claim frequency on the climate index, accounts for the extreme nature of loss distributions, and integrates solvency requirements through a VaR constraint. The developed hybrid tariff-setting model ensures a combination of actuarial soundness, strategic flexibility, and market competitiveness. The theoretical significance lies in advancing the concept of climate-oriented underwriting as a component of the financial risk-management system. The methodological novelty consists in combining stochastic modeling, scenario analysis, Solvency II principles, and behavioral demand parameters within a single optimization framework. The practical significance is defined as the potential for adapting the proposed model to tariff setting by Ukrainian insurers in the process of integration into the European regulatory space and during post-war reconstruction.