Climate risk modeling possibility with indexes

Abstract

The paper includes the analyzes of a possibility of applying the index to quantify different climate variables. The calculation methodology was presented as well as the standard features of the most important weather indices such as temperature, precipitation (SPI), decile and quantile indices. In addition to the mentioned indices that can be conditionally classified as simpler, the paper analyzes composite indices, developed on a complex basis, such as the Guy Carpenter index or the RMS index. The complex indices have only been in use for the past few years. Based on the analysis of current indices and their practical use, it is concluded that the weather index, in order to be applicable in practice, has to be correlated with the effects caused by the weather variable (in addition to its transparency, verifiability and objectivity). The paper leads to the conclusion that climate indices can form an acceptable alternative and the merits of an insurance contract with index clause, in the case of a lack of historical data on damages and impossibility of modelling catastrophe climate events in another way. The calculation of the index is shown in particular examples.