The insurance industry must mobilise its technical expertise and trillions of dollars of capital to help increase resilience to major disasters, said panellists speaking at the Business of Resilience Conference hosted by the UK Department of International Trade.
Greg Case, chief executive of
Aon, said the pandemic has caused a “great awakening” among chief executives to
the “next generation of long-tail risks”. Business leaders are now asking what
the next big event will be and risks like climate change, cyber and pandemic,
which were once on the “horizon”, are now on the “front porch”, he said.
“We are observing a fundamental
re-ordering of client priorities on a global scale,” Mr Case said. Instead of
trying to adjust to the “new normal”, society and businesses should “reframe
their perspective” to focus on building the “new better”, Mr Case said. There
is an opportunity to press forward and “accelerate innovation”, he added at the
two-day event.
According to Lauren Sorkin,
executive director at the Resilient Cities Network, the insurance industry’s
“risk-informed capital” could be mobilised to build resilience. She noted that
the insurance industry has good data on risk, technical expertise and large
balance sheets that can be leveraged by cities looking to build more resilient
infrastructure.
Speaking at the event, Ms
Sorkin said there are opportunities to incentivise public-private partnerships
and investment in more resilient infrastructure. In particular, insurers could
bring their risk engineering to emerging markets, where about a third of
infrastructure has yet to be built, she said.
Ms Sorkin defined resilience as
the ability of society and business to survive and adapt to acute shocks like
the pandemic or climate change. “Covid-19 is the alarm button that we just
can’t snooze,” she said.
Emma Howard Boyd, chair of the
UK’s Environment Agency, also believes that the insurance industry can use its
balance sheet alongside government funds to invest in resilience measures.
Rather than just “bail out”
businesses and victims of disasters, insurers should use their investments to
build resilience to climate change and take into account net-zero commitments,
she said. For example, the Environment Agency is already working on a number of
public-private partnership financial solution projects, including one
initiative with FloodRe that could be scaled up, she said.
The insurance industry has the
“appetite” to invest in more resilient infrastructure, according to Lloyd’s
chief executive officer John Neal. In fact, the insurance industry sees climate
change as the “biggest investment opportunity of a lifetime”, he said.
According to Mr Neal, there
could be as much as $13trn ready to invest in more resilient infrastructure,
yet the required changes in policy, regulation and capability to make those
investments are not happening fast enough, he said.
“The money is there but we need
to cut through the bureaucracy,” Mr Neal said. In particular, insurance
regulation, which continues to be influenced by bank supervision, needs to be
adapted to better reflect the business of insurance, Mr Neal told the webinar.
“Sharp work” is needed around policy and regulation to put money to work on
resilience, he added.
Several speakers at the event,
including Mr Case, believe building resilience to future events will require
public-private partnerships, including between the insurance industry and
governments. “The greatest opportunity is to join together and address these
challenges,” Mr Case said.
Opening the event, Lloyd’s
chairman Bruce Carnegie-Brown said insurance has an important role in helping
countries and businesses recover from disasters. However, some risks are too big
for the industry to handle alone, he pointed out.
The insurance industry has
about $2trn available to pay claims, yet the cost of Covid-19 in terms of
government support is about $14trn, said Mr Carnegie-Brown. The pandemic is
likely to cost the insurance industry $100bn, of which Lloyd’s expects to pay
$5bn.
Mr Carnegie-Brown said
governments should be “receptive” to public-private partnerships to prepare for
future ‘black swan’ events, such as a pandemic or cyber incident. He suggested
following the model of Pool Re, where the insurance industry has built a fund
of $6.5bn to pay terrorism claims that can be topped up by a government loan
should losses exceed this amount.
David Howden, chief executive
of broker Howden Group, said the insurance industry needs to listen to the
needs of its customers, including cities and municipalities, and do more to
help prevent and mitigate risk. He referred to a catastrophe bond issued this
week for the Danish Red Cross, which provides contingency funding in the event
of a major volcanic eruption.
CRE
© Commercial Risk Europe
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article