A global network of 28 insurance industry organisations, ClimateWise, has called for firms to step up proactive efforts to close the insurance protection gap as climate risk exposure continues to grow, with 2017 on track to become one of the most expensive years to date for climate-related natural disasters.
ClimateWise is a network, convened by the University of Cambridge Institute for Sustainability Leadership (CISL), that supports the insurance industry in responding to risks and opportunities connected with the climate-protection gap – the growing gap between economic and insured losses.
“Our industry has been shaken by climate perils impacting urban centres,” said Maurice Tulloch, Chairman of Global General Insurance at Aviva and Chair of ClimateWise, adding “the climate risk protection gap presents insurers with one of our industry’s most profound challenges. The cost of extending sustainable insurance cover is now simply not affordable in many places. A proactive response is required.”
Over the past decade, the climate risk protection gap reached U.S $1.7 trillion, ClimateWise said.
The $180 billion in losses related to Hurricane Harvey when it hit Texas in August, was just one of many events that exposed the growing vulnerabilities of urban centres.
At $19 billion, Harvey’s insured losses were just 10.5% of the total losses – and this is a scenario that appears set to be repeated in coming years as the world grapples with the impact of climate change.
In Southern Brazil one-quarter of cities reported being in a state of emergency after being hit by a series of droughts and excessive downpours, according to a survey by Folha based on Brazil’s Ministry of National Integration.
1,296 of Southern Brazilian cities have asked the federal government for aid to deal with severe weather-related damages.
“Cities are at the epicentre of the climate risk protection gap crisis, given their concentration of economic activity and vulnerability,” said Tom Herbstein, ClimateWise Director; “the challenge is how to extend insurance cover in a world where climate risk exposure continues to grow.
“While the climate risk protection gap presents a very real challenge for cities, there are also many opportunities for new partnerships and products. Insurers must start proactively exploring where, within their own value chains, and collaboratively across the industry, these opportunities lie.”
Throughout 2017, re/insurers have shown an increased impetus to innovate to create new products in microinsurance, or parametric solutions, which are more affordable throughout the emerging markets of the developing world.
Swiss Re successfully rolled out what its Chief Executive Officer, Christian Mumenthaler, called one of the most innovative products in the world, the Kenyan Livestock Insurance Programme (KLIP) which makes a payout to Kenyan farmers in times of drought with index-based payments pegged to satellite measurements of data.
The innovative insurance programme collects data using satellites to monitor vegetation available to livestock, and triggers financial assistance that is paid out directly to the pastoralists’ bank accounts or through mobile phone accounts.
Innovative solutions that have been explored and had their concept proven this year, including some instigated by some of the governments of the biggest emerging economies, like China and India, could be rolled out in a much bigger way in the near-term future, driving increased resilience in economies and societies.
Other developments show the reinsurance sector switching increasingly towards a more collaborative approach, with initiatives such as the Insurance Development Forum bringing governments and the financial and insurance sector together to tackle the protection gap.
Coming years will likely bring significant expansion and change in how re/insurance is deployed, responding to the increasing opportunities offered by new technologies and platforms and the challenge of mitigating the impact of climate change.
