In recognition of the impact wrought by Superstorm Sandy – $68 billion, the second biggest natural catastrophe loss in U.S. history – and the recent release of the IPCC’s climate report, the Geneva Association has issued a call to governments to “expand and increase their disaster resilience and response efforts.”
The Association said: “The science underlying the IPCC report states with unprecedented certainty that the climate is changing and the speed at which these changes are taking place is accelerating. As a result, the frequency and intensity of weather events will continue to increase in certain regions. Recent insurance industry data also confirms that both the cost and the frequency of climate related insurance claims are rising.
“This is partly attributable to a greater number of policyholders and an increased value of possessions as well as an increased frequency and severity of events as the IPCC report suggests. The insurance industry welcomes the IPCC report and stands ready to increase its collaboration with governments and other organizations to adapt to, mitigate and recover from disaster risks.”
Michael Butt, Co-Chair of The Geneva Association’s climate risk and insurance working group and Chairman of Axis Capital commented: “Insurers are already taking steps to adapt to the changing environment through, for example, changes in modeling techniques, the provision of climate resilient and renewable resource incentives and conducting more sustainable operations. But the way we construct our societies needs reconsideration because risks are not being accounted for correctly and this is the responsibility of governments.
“There is a clear correlation between risk accumulation and economic growth which is saving up the potential for greater economic and human losses in the future, not least in the face of a changing climate.”
The Association pointed out that the world’s governments must “recognize the urgency of the implications of the IPCC report and take action to adapt to the changing environment. As well as more disaster conscious investment in future, government investment is also needed in measures to reduce disaster impacts and retro-manage risks in communities to stem the increasing human and economic costs.”
Shuzo Sumi, Chairman of Tokio Marine and Vice Chairman of The Geneva Association said: “Insurance is a vital tool in the development and sustainability of both emerging and developed economies.”
The report also notes that the insurance industry “can support governments in a number of ways. Before a disaster occurs, insurance can send a clear signal about the cost of taking a particular risk– building on flood plains for example. It can also advise governments on resilient behavior and the legislative environment that promotes risk adequate behavior through, for example, adjusting building codes to make buildings more resilient to earthquakes or flooding.
“Insurance also fosters stability in the global economy as well as for governments and taxpayers by taking on risks and dispersing them around the world through the global reinsurance markets.
“After a disaster, a functioning insurance market has an important role to play as a loss absorption mechanism for individuals and institutions helping them back on their feet.” Research from the World Bank shows that at an economic level, “insurance supports post disaster economic recovery by injecting liquidity into the affected areas and lifting some of the monetary burden from the affected government and therefore the taxpayer… The availability of insurance seems to dampen the impact of disasters by taking some of the losses and helping the government to focus fiscal expenses on the remaining un-hedged risks.”
This supporting role of insurance is most pronounced in less developed economies that not only suffer the cost of the initial disaster, but also suffer from a permanent setback in their development. The World Bank research reports, “Countries with smaller insurance markets expand deficits more, yet still suffer more from disasters. It seems that the availability of insurance reduces the real consequences without requiring an increase in fiscal burdens.”
John H. Fitzpatrick, Secretary General of The Geneva Association added: “Insurance can support government disaster risk and impact reduction measures. This year The Geneva Association has published two reports to show how. Our conference in Sendai, Japan next week seeks to bring governments, NGOs and insurers together to discuss how the private sector and governments can work more effectively together to reduce disaster risks.
“Through collaboration with the United Nations’ International Strategy for Disaster Risk Reduction and other supranational organizations we will also continue to look at ways to increase insurers’ role in disaster risk and impact reduction measures.”
Source: The Geneva Association
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