Fast Fast Forward

A Global Drive: Initiatives Tackling Disaster Risk

Disaster 500

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In many cases, the growth of exposure is far outpacing take-up of insurance coverage – leading to what is commonly referred to as the protection gap.  Although natural catastrophes occur throughout the world, the risk of human casualties due to such an event is much greater in developing countries – and often the financial impact is much more severe. Hurricane Matthew has illustrated the stark differences that the impact of a storm can have on different economies.

The human and financial cost of storms

Hurricane Matthew was the fiercest Caribbean storm in nearly a decade – over 800 were killed in Haiti and thousands displaced before the storm headed for the South-Eastern United States. Hurricane Matthew impacted North Carolina and Virginia in early October, packing a diminished yet still potent punch as it caused major flooding and widespread power outages along the U.S. Atlantic coast. The insured losses from the hurricane in the US are expected to fall between $1.5 and $5 billion and $1 billion and $3 billion in the Caribbean, with the highest proportion of the loss emanating from the Bahamas, according to RMS. The poorest parts of the Caribbean have the least coverage - and as a result will take the longest to recover.

Bridging the gap

The question we are asking is how we and the wider insurance community can help to bridge the insurance gap – particularly between the rich and poor.

According to the Geneva Association, between 1980 and 2015 more than 600,000 lives were lost and $3 trillion in total economic losses were caused by weather-related catastrophes. The insurance think tank (of which our CEO Mike McGavick is Chairman) found that countries with disaster insurance recover faster from the financial impacts of extreme events in its latest report called
An Integrated Approach to Managing Extreme Events and Climate Risks”.

(Re)Insurers today clearly have a vital role to play in strengthening risk management capacities and the expansion of risk transfer solutions. It is incumbent on the industry to raise the awareness of risk levels, the benefits of pre disaster planning including resiliency (eg flood walls and infrastructure investment) and the role risk transfer can play in quickly rebuilding impacted regions.

 

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While progress is being made with governments and NGOs, it is also vital to consider how to best direct insurance to those who need it the most.

 

Raising awareness of our capabilities is central to realising the possibilities. Stephen Catlin our deputy chairman is also extremely active in this area and earlier this year was appointed as Chairman of the Insurance Development Forum (IDF). The IDF aims to incorporate insurance industry risk management expertise into existing governmental disaster risk reduction and resilience frameworks. It also aims to build a more sustainable and resilient global insurance market in a world facing growing natural disaster and climate risk.

XL Catlin are among a group of eight syndicates that make up the Lloyd’s Disaster Risk Fund – a Lloyd’s initiative designed to help developing economies improve resilience against natural catastrophes. The syndicates have pledged capacity of USD 400m towards solutions which address natural catastrophe risks in emerging economies.

We are also a member of the Blue Marble Microinsurance Consortium which is
committed to providing insurance to developing regions of the world using innovative technology-enabled platforms.

These various initiatives do have their work cut out - the Geneva Association’s report said that globally, over the past three decades, the share of uninsured losses as a percentage of world GDP has increased from 0.02% to 0.12%, according to Swiss Re. The gap is particularly pronounced in low-income countries where typically more than 95% of all losses remain uninsured.

An integrated approach

The key to bridging the protection gap is to truly integrate a public private approach to managing extreme events – a sound disaster risk financing and insurance strategy helps to increase the financial resilience of governments, businesses, communities, households and individuals.

T
hankfully, worldwide governments and non-governmental organisations (NGOs) recognise the potential benefits of the (Re)Insurance sector - not only because of its investment and risk transfer functions, but also its expertise in risk modelling and resilience research. The Geneva Association report points to a number of initiatives as conduits for raising political awareness of the importance of building resilience to extreme events – these include:

  • 100 Resilient Cities Initiative led by the Rockefeller Foundation 
  • Making Cities Resilient, the UN-supported global campaign
  • And actions by the international association of mayors ICLEI–Local Governments for Sustainability

While progress is being made with governments and NGOs, it is also vital to consider how to best direct insurance to those who need it the most. This is where the industry needs to continue to modernise its ideas and consider new technology rather than sticking to old methods of distribution.

The aim of the industry must be to help close the protection gap, which would mean greater financial inclusion, greater resiliency post-disaster, increased strengthening of infrastructure, more stable governments – but most importantly ensuring the protection and livelihoods of those people most at risk.

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