Reinsurance News

City policyholders should bolster infrastructure resilience: Lloyd’s

27th March 2017 - Author: Staff Writer

In a recent report on risk management of city infrastructure, Lloyd’s of London stressed cities needed to take a more comprehensive approach to build risk resilience, and highlighted ways the insurance industry and stakeholders could collaborate more closely to improve infrastructure management.

With booming populations, cities are especially vulnerable to disaster exposure, and economic consequences after even the slightest infrastructure damage can be severe.

John Parry, Chief Financial Officer (CFO), Lloyd’s, said; “Most global population increases are expected to take place in cities that are more at risk from natural hazards, and cities in general are exposed to a greater diversity of risks than ever before.

“It is absolutely critical, therefore, that city officials, working with insurers and other stakeholders, act to improve city resilience. The principles set out in this report represent a new approach that could substantially improve infrastructure resilience around the world.”

The Lloyd’s report said current risk mitigation strategies within cities, which often cover infrastructure on an asset by asset basis, were insufficient in dealing with major disaster, and instead recommended a comprehensive, triple-pronged infrastructure management strategy.

Failure prevention – making city infrastructure more resilient to shocks so the system continues to operate in cases of partial temporary failure, together with examining how to ensure quick restarting of infrastructure after a disaster has taken place, are strategies recommended by Lloyd’s.

And alongside ensuring failure prevention and quick recovery mechanisms, cities needed to quickly replace damaged infrastructure with ‘a more resilient version as part of the rebuilding process,’ said Lloyd’s, in order to save lives, economic costs, and prevent further infrastructure damage.

The report further stressed the need for city government’s to work closely with the insurance industry – to benefit from insurers data collection, and risk projection models and tools.

Samantha Stratton-Short, Associate Director, Arup, said; “Cities are complex interconnections of people that rely on infrastructure. In order to build resilience in cities, we need to understand the performance of the infrastructure that connects, provides and protects society. Using our sector expertise and evidence gathered from case studies during and after shock events, we have developed principles for enhancing resilience through planning, design, build and operations of infrastructure systems.”

Policyholders are advised to create incentives for infrastructure investment and risk resilience through risk-based pricing and making resilience assessments readily available.

Local governments could also create indices to incorporate risk resilience into insurance underwriting; Trevor Maynard, Head of Innovation, Lloyd’s, said; “Multiple factors build resilience and these should be measured and summarised by creating indices.

“This is essential to enable insurers better to incorporate levels of resilience into the underwriting process, which would then be expected to recognise and reward the action taken by city officials where risk-based pricing is permitted.”

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