The reinsurance industry’s knowledge and expertise in risk identification and mitigation will be a critical tool in building resilience against climate change, says Urs Baertschi, Chief Executive Officer Reinsurance EMEA / Regional President EMEA at Swiss Re.
Speaking in an interview with Reinsurance News, Baertschi argued that the insurance industry is set to play a “leading role” in a future world where more extreme weather events are the norm.
But beyond simple risk transfer and claims payments, the industry’s leadership in building resilience will stem from its ability to leverage a unique combination of knowledge, data and infrastructure, he said.
“In order to underwrite risks, our industry must understand them profoundly,” Baertschi told Reinsurance News.
“This requires detailed knowledge of almost all aspects of our environment and our activities: construction, geography, climatology, geology, demography, health and finance, just to name a few,” he explained.
“On top of that, technological advances are transforming our industry’s ability to analyse and mitigate risks. This will enable us to support our customers as well as local and national governments through the development and implementation of climate adaptation policies and preventive measures.”
Data will also enable the insurance industry to develop solutions that reduce the impact of climate change, particularly in areas such as flood mapping where the specific exposure of an individual property can now be calculated.
“This enables more specific pricing strategies that, combined with rebates for climate-proofing, can ‘nudge’ owners and local governments into building a more resilient housing stock,” Baertschi remarked.
And as future conditions become more turbulent, Swiss Re believes that huge investments will be needed to build infrastructure for a low-carbon world and to upgrade existing infrastructure to endure and minimize the impact of disasters.
Here, Baertschi sees the value of the insurance industry partly in terms of its role as a risk expert, but also as an investor and risk carrier.
“As risk experts, we understand how, where and what forms of infrastructure can create the most resilience,” he said. “This can also include acting as an advisor for governments on such topics as the development of building standards and land use.”
By creating the right legislative and regulatory environment, Baertschi believes governments can mobilise the insurance industry in the development of a more resilient infrastructure backbone, fit for an increasingly volatile climate.
He continued: “As investors, we have a long-term outlook and seek to match the extended time horizon of our liabilities with similar-duration investments and predictable cashflow. Our investment interests therefore include the development of and investment in infrastructure fit for the future.”
And finally, as risk carriers, Baertschi noted insurance is “often a pre-requisite for project financing and provides additional certainty that projects will be completed as designed and on-time.”
In this sense it also enables the delivery of more complex and impactful projects, many of which could facilitate the adoption of green technologies that lower carbon emissions.
“Climate change poses an existential threat to the human race,” Baertschi concluded.
“That’s why the insurance industry, working closely with the public sector, must play a central role in the mitigation of the impacts of climate change. Together we make the world more resilient for ourselves, for our children, and for generations to come.”
