Putting insurance at the centre of resilience needs

I had my first taste of work in California back in 1994, when I started as an intern at the California Department of Insurance’s rate filing bureau in San Francisco. 30 years later I was back in the Golden State to join the inaugural Global Sustainable Insurance Summit in Los Angeles, hosted by California's insurance commissioner, Ricardo Lara, in collaboration with Butch Bacani and the UN Environment Programme Finance Initiative. 

Much has changed in insurance since 1994, not least that the insurance loss burden from catastrophes worldwide has more than doubled. In fact, according to the Swiss Re Institute's latest report, natural catastrophes in 2023 resulted in economic losses of $280 billion – of which 40% were insured losses, well above the previous 10-year average of $89 billion. Also, such losses are increasingly driven by severe thunderstorms which have risen approximately 7% annually in the last 30 years.

These trends are influenced by factors such as urbanisation, inflation and climate change. In parallel, demand for natural catastrophe re/insurance has continued to exceed supply creating a protection gap which raises social and economic concerns regarding insurability of certain risks and affordability of insurance for individuals and communities.

To improve the insurability and affordability of insurance one key takeaway from those gathered at the Insurance Summit was that we need a holistic approach to natural catastrophe risk including risk modelling, risk transfer and risk insights. With public, private sector partnerships, at their heart, such an approach can ensure long-term insurability through active adaptation and risk management. For example, long-term insurability of wildfire risk requires coordinated mitigation between property owners, insurers, home builders and municipalities, coupled with more effective and sustained forest management techniques.

The industry also needs to continue to innovate in order to meet increasingly complex needs. Traditional indemnity-based insurance solutions do not always provide the breadth of financial protection and speed of financial support required by States, municipalities or government agencies. That's why I am delighted that we have seen welcome advancement, particularly with our public sector partners, in the area of parametric insurance cover.

Parametric cover provides great flexibility and broad coverage upon a trigger event and Swiss Re recently partnered with New York City, ICEYE and Guy Carpenter to provide parametric coverage for excess rainfall and storm surge events that can lead to severe flooding. After such an event, the Center for NYC Neighborhoods receives the proceeds of a parametric derivative payout to support it in making emergency cash grants to eligible New Yorkers. We hope to replicate this for populations and for emergency funding that otherwise would not have been available.

One of the learnings of this work is that many municipalities do not automatically think of insurance as a valuable tool in building resilience. The industry must better promote the advantages of such ex-ante thinking as in the New York City example above. Because former United Nations Secretary General, Kofi Annan's quote in 1999 still rings true today:

“Building a culture of prevention is not easy. While the costs of prevention have to be paid in the present, its benefits lie in a distant future. Moreover, the benefits are not tangible; they are the disasters that did NOT happen.”

Progress is being made. I am very enthusiastic about Swiss Re's partnership with the World Bank, in helping launch its Parametric-based Cat Bonds issuances, which are the catalysts to promote parametric solutions and start to address the climate risk that developing countries are facing.

Jamaica recently placed a Cat Bond to complement its financial and risk management strategy in relation to natural catastrophes and reduce the fiscal burden associated with the rising impact of climate change. Jamaica is highly exposed to tropical cyclone events and for this reason the cat bond forms part of a multi-layered disaster risk financing strategy reducing the fiscal burden of natural disasters, while allowing the government to respond swiftly.

Such an example helps Swiss Re fulfil its mission to make the world more resilient.

The Los Angeles event showcased the tremendous value to be unlocked through the work of the re/insurance industry and its partners. Special thanks go to California Commissioner Ricardo Lara and Michael Peterson for hosting such an impressive event, Butch Bacani UNEPFI and to members of my panel; Lloyd Dixon of Rand, Katie Sabo of Aon, Satoshi Ikeda of FSA Japan and Hawaii Insurance Commissioner Gordon Ito.