A new article by David Howden, founder and CEO of the Howden Group, says that forecasts that $2bn of private funded disaster insurance capacity can be delivered in the next few years.
Writing on LinkedIn, Howden said that he believes that this extra capacity can be delivered within the next three-to-five years. In his article, Howden said that this extra capacity was part of how the insurance industry can help those already feeling the effects of climate change.
Howden wrote that there were three main steps to this: the promoting of the value of insurance, addressing the affordability issue, and building trust with those responding to disasters.
He wrote: “Payment through traditional insurance models can take time. When a loss happens it is assessed, then the pay-out is debated and agreed. But that model doesn’t work for disaster relief. People who have lost everything to fire, flood, or tornado can’t wait months for an adjustor to tell them whether or not their loss is covered. And they can’t wait even longer for a pay-out. Parametric insurance overcomes this by offering guaranteed, immediate funds in response to pre-agreed triggers. Too much rain, too much wind, too much heat – all can trigger a guaranteed, immediate payment of a pre-agreed amount. This immediacy of funding can enable the kind of crucial action in the first days and weeks that can prevent a disaster from developing into a crisis.”
On the second point, Howden referred to his speech at COP26 and the launch of the world’s first Volcano Bond. He also referred to this year’s COP27 and The Sustainable Markets Initiative Terra Carta Action Forum.
Howden wrote: “I challenged the wider insurance market and financial services sector to direct a percentage of its charitable giving into funds to cover premiums for similar projects. At COP27, I attended The Sustainable Markets Initiative Terra Carta Action Forum. Looking around the room at the CEOs of some of the world’s largest companies, I started to think about how we might galvanise the private sector support for charity innovation. If the foundations and CSR pots of all of the companies in our network pooled just a small part of their funds into a huge pot to fund thousands of projects around the world? That could really start to put a dent in that funding gap.”
He added: “People want to see their employers doing this. We give employees at Howden the option to donate a proportion of their shares in the business to help fund charitable giving, and there is an overwhelmingly positive response. People want to see the businesses they work for and the foundations those businesses fund having a positive impact on the world. Businesses use insurance to build resilience and smooth volatility in their own organisations, so why not use the same tools to benefit the communities most vulnerable to climate disasters?”
Howden also flagged what he called ‘the funding gap’ between the money needed for disaster relief and the amount available. Twenty-two years ago, he wrote, that the gap was around $1bn, growing to $4bn a decade later.
He wrote: “By the time I was talking in Glasgow last year, it was $20 billion. And today? That gap has grown to over $30bn.”
There are a number of reasons for this gap, wrote Howden, with climate change being ‘a major contributor’.
He wrote: “This year we’ve seen the deadliest floods in Pakistan since 2010, the worst flooding for 122 years in the Sylhet region of Bangladesh, and the most prolonged drought in 40 years across the Horn of Africa. All of these, plus the many, many more climate change-related disasters, are putting huge financial strain on humanitarian budgets. In addition to this, geopolitical and financial crises are raising costs everywhere. This is increasing the cost of delivering disaster relief, and the pressure on the finances of those providing the funding. Pre-2018, funding for disaster relief was growing 10% annually. Since 2018, it [it has been growing by] only 2.6%.”
