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Urbanised Latin America – highly vulnerable to climate risk: Swiss Re

11th April 2017 - Author: Staff Writer

With climate change ramping up the heat on emerging markets already vulnerable to natural disaster risk, the highly urbanised but marginally protected Latin America appears poised for increased economic and social fallout – if the region fails to develop improved risk mitigation solutions.

Reinsurance in Latin AmericaMartyn Parker, Chairman of Swiss Re Global Partnerships, UK, recently highlighted the case for especially climate-exposed South American governments and businesses to adopt a proactive approach to risk mitigation.

Swiss Re named Argentina as one such example of the kinds of extreme risk much of the region’s population is exposed to – where one-third of the countries’ population lives in areas highly at-risk of flooding.

The severity of these natural disasters poses a growing threat to Argentinian social stability, critical infrastructure and the economy with estimated economic damage amounting to losses of about 0.15% of its GDP linked to flood-related events alone, adding up to a total economic loss of around $700 million a year, according to Swiss Re.

And with recent years bringing significant increases in devastating flood and drought events throughout the continent – where 80% of the population is crowded into cities – Parker emphasized the “strong business case” for governments and businesses in Latin and Central America and beyond to consider insurance as a tool in their efforts to effectively improve disaster and climate resilience.

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“Insurance and a proactive, holistic risk management approach are essential tools for cities and governments to protect and provide opportunity for their citizens.

“As such, resilience strategies cannot address climate change alone – factors like the wealth gap, sustainable green growth and sustainable infrastructure development must also be addressed,” he added.

Swiss Re’s Global Partnerships Chairman pointed to recent examples of programmes governments in other regions have undertaken to successfully improve flood resilience, particularly the UK’s Flood Re and the revamped National Flood Insurance Program in the U.S. – highlighting that collaboration “is the most effective way to drive our common effort to shape a more resilient world and break the nexus between extreme weather and extreme poverty.”

Although much of the continent remains highly exposed to growing climate-related risk and in need of risk transfer solutions, the region, and particularly Mexico, has also recently come under the spotlight for the success of its integrated disaster risk management framework initiatives.

FONDEN – a financial vehicle used by the Mexican government to provide pre-event funding from tax revenues for disaster response and reconstruction – has been touted by the World Bank as the “vanguard of initiatives aimed at the development of an integrated disaster risk management framework, including the effective use of risk financing and insurance mechanisms to manage the fiscal risk derived from disasters.”

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