The destructive outcomes of climate change have a massive human and economic toll, according to Munich Re1, who observed that low and middle-income countries are disproportionately affected, accounting for 85 percent of deaths from natural disasters. They also estimated that global weather-related losses have increased four-fold from an average of US$50 billion per year in the 1980s to nearly US$200 billion per year over the past decade.
Fortunately, world leaders are awakening to the issue. At the broadest level, a successor to the UN Millennium Development Goals will be finalized by 2015, to guide national plans to eradicate poverty, respond to climate change and strengthen resilience.
In tandem, 160 countries will reconvene in Japan in 2015 to agree on a successor to the 10 year Hyogo Framework for Action (HFA), signed in 2005 to build nations’ resilience to disasters. Aligned with the UN’s new Sustainable Development Goals, HFA2 will provide direction to help prevent the creation of new risk, reduce existing risk by addressing exposure and vulnerability, and strengthen resilience through social and economic measures — including disaster risk financing and insurance.
“Now is the time for the private sector to join the conversation,” observes Serena Brown, Senior Manager, with the Global Development Initiative at KPMG International. Her global corporate citizenship team has made sustainable development and risk reduction a focus, both by providing leadership and analysis on the issues and by coordinating KPMG’s global response to inclusive economic development and natural disasters. Most recently, the team worked with Oxfam to share member firm expertise to enhance the resilience of disaster prone communities in the Philippines.
Insurers’ role becoming clear
The role for insurers is vast, notes Serena, pointing first to the UN Environmental Program’s Finance Initiative, Principles for Sustainable Insurance. These four principles, launched in June 2012, outline how the insurance industry can embed environmental, social and governance issues into decision-making, work with partners to manage risk and develop solutions in an accountable, transparent manner.
“The world is looking to the insurance industry as a source of patient capital to fund resilient infrastructure projects, as a source of risk data and risk management expertise to strengthen government capacity, and as a provider of risk transfer solutions,” explains Serena, “to factor integrated disaster risk reduction and resilience (PDF 3 MB) thinking into their strategies and risk management frameworks”2.
“And now is a really interesting time for insurers to get involved, in light of technology change that makes many things possible at an affordable price,” says Serena, noting how remote sensing, data analytics and cloud computing enable advanced risk modeling, weather forecasting and damage assessment, while mobile phones and mobile money expand the reach of micro-insurance to remote communities.
A number of insurers have recently collaborated on open-source models, for example building the Global Earthquake Model and the Global Risk Data Viewer led by the UN Office for Disaster Risk Reduction. Meanwhile, Zurich Insurance Group and its Zurich Foundation distinguished itself in 2013 by renewing a five-year, US$23 million partnership with the International Federation of the Red Cross to establish a community flood resilience program, with Mexico being the first of several countries to include community projects and sophisticated flood risk modeling.
“Insurers have a huge influence, whether as providers of macro, meso and micro risk transfer solutions, or by accurately pricing risk which guides business and governments to make appropriate investment decisions,” suggests Serena. “They can invest in climate adaptation, such as renewable energy projects and share their risk management expertise to develop governments’ capabilities to manage complex inter-related national level risks. All of these efforts can help us better reduce, manage and underwrite risk, and keep insurance relevant for the future.”
Noting the urgency of the issue, Serena adds that, “Since the private sector represents about 85 percent of global investment, the decisions made today will lock us in for decades. We must accelerate thinking about how we make business investment more resilient and how we can work together, including insurers, the wider private sector, governments and civil society, since none of us can solve the challenge individually.”