Climate risk is reshaping how insurers see their portfolios. The question is not whether exposures exist, but how to identify them and respond in ways that are both rigorous and practical. For this, the International Standard Industrial Classification system—ISIC codes—provides an anchor, allowing insurers to bring order to the sheer diversity of policyholders and risks.
The process starts with portfolio segmentation. Insurers assign ISIC codes to each policyholder: agriculture as ISIC 0111, forestry as ISIC 0210, and so on. It sounds simple, but the clarity this provides is significant. Sectors differ not just in risk type—drought, flood, wildfire—but also in the nature and scale of losses that may occur. Grouping by ISIC creates the foundation for analysis that is both systematic and comparable across time and place.
The next layer is geography. Each policyholder, whether a farm, plant, or warehouse, has a physical location. Geospatial climate models—maps of projected flood plains, drought probabilities, wildfire zones—are then overlaid onto this data. The result is a sector-by-location matrix: insurers can see, for example, which forestry clients are most exposed to drought, or which clusters of agricultural policyholders lie in areas facing heightened flood risk. This mapping turns an abstract problem into something concrete, even actionable.
Stress testing follows. The idea is to model scenarios—major flood, prolonged drought, a string of wildfires—and estimate potential financial losses across the ISIC-coded segments of the portfolio. For agriculture, that might mean reduced yields or livestock losses; for forestry, the cost of fire or pest outbreaks. Analysts simulate these scenarios, aggregating expected losses by sector and region, so insurers can see how a single event or gradual shift might ripple through their book.
These exercises support the next step: setting risk-based premiums. If a particular segment—say, farms in a drought-prone area—emerges as especially vulnerable, insurers can calibrate premiums accordingly. The same logic applies to regions or sectors facing novel or rising threats. This alignment of price with risk is more than a technical fix; it’s a way to signal to clients where risk mitigation is needed, and, in some cases, to clarify when certain risks may be uninsurable under prevailing conditions.
A practical workflow unfolds in a few steps. First, classify all policyholders by ISIC and location. Second, overlay this map with the latest geospatial climate risk models. Third, run scenario-based stress tests, aggregating results by ISIC and geography. Fourth, use these outputs to revisit premium schedules and coverage terms, and to flag concentrations of risk that may require reinsurance or other adjustments.
Of course, no method is perfect. Not all policyholders are neatly coded or geolocated; climate models are evolving, and some emerging risks may cross sectoral boundaries. Still, the combination of ISIC classification and geospatial analytics is quickly becoming central to climate risk management in insurance. It brings a discipline and transparency that supports not only portfolio resilience, but also clearer communication with clients and regulators.
As climate change accelerates, the ability to quantify and price risk—rooted in a shared language and structured analysis—will become a core differentiator in insurance. The methods may evolve, but the need for clarity, comparability, and evidence-based adjustment is unlikely to fade. ISIC codes, long a tool of economic statisticians, are now essential for insurers navigating an uncertain, warming world.