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Reinsurance no silver bullet to climate challenge: Gallagher Re’s Bavandi

9th March 2023 - Author: Matt Sheehan

Antoine Bavandi, Global Head of Public Sector & Climate Resilience Solutions at Gallagher Re, has contended that re/insurance cover alone is no “silver bullet” to matching capital with risk and addressing the growing challenge of climate resilience.

Bavandi instead suggests that insurance and reinsurance are only part of a much wider set of highly complementary instruments, and argues that climate resilience needs to be built through holistic public-private risk solutions.

Among the approaches advocated by Bavandi are risk reduction incentives and investments, use of contingent capital, efficient claims or disbursement mechanisms, prevention, climate adaptation, green finance, and a broader understanding of systemic liabilities.

“Creating such an ecosystem of mutually reinforcing mechanisms not only contributes to more robust financial protection overall, it also makes risk transfer a more cost-effective instrument,” he explained.

“This helps unlock the full benefits of transferring residual risk to third parties where most relevant, as part of a coherent and fully integrated response to climate shocks and extreme events. And in turn, allowing businesses to grow in more sustainable ways and outperform  their competition.”

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But implementing such an approach requires a more holistic perspective on a wider range of financial risks, Bavandi added.

“Well-targeted, multi-stakeholder, public-private partnerships and risk-sharing facilities can create these necessary conditions to help overcome various implementation and sustainability constraints,” he continued.

“Legal, regulatory, technological, cultural and other financial barriers often represent major bottlenecks to successfully responding to major disaster events … However, these partnerships take time before they can be implemented successfully , including for reasons related to risk model development and high degree of risk aversion from public entities. But the urgency of the climate, energy and political crises certainly justifies accelerating the pace of development and bringing all financial protection instruments to bear.”

Bavandi notes that the increasing volatility in both frequency and severity of climate and disaster events has left communities, businesses, supply chains, infrastructure and critical services uncovered in recent years, with the global risk protection gap sitting largely in excess of 90%.

Combined with factors such as growth concentration and the consolidation of the global supply chain, this means systemic or highly correlated risks now have the potential to cause much greater disruption, which in turns makes the need for climate resilience action more pressing than ever.

“Such a broad range of issues requires a coordinated and comprehensive approach to helping clients navigate through uncertain times,” Bavandi commented.

“Against this backdrop, matching capital with risk is not a small task, and the race to securing a (re)insurance cover alone not a silver bullet. The solution is perhaps to be found by addressing the actual demand from clients and helping them achieve effective financial resilience overall.”

To this end, Gallagher Reis launching a new service through Gallagher Public Sector & Climate Resilience Solutions practice that focuses on delivering analytics, advisory and transactions to help clients address catastrophe and systemic threats.

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