The latest report from the Geneva Association , No. 5 in the current series – Extreme events and insurance: 2011 annus horribilis -, describes the global impact of the major 2011 natural catastrophes, and analyzes the role and mechanisms of insurance in managing climate risk and other extreme events.
The report, compiled by leading insurance academics, economists and insurers, sets out in nine essays the importance of “risk adaptation and management measures in developing physical and economic resilience to natural catastrophes, including the important role of insurance in such mechanisms,” said the Association’s bulletin.
“It also provides the implicit ‘lessons learned’ from the catastrophes that will enable better risk assessment and adaptation to similar risks in future.”
Walter R. Stahel, vice secretary general and head of the association’s risk management program pointed out: “Predictions suggest that by 2025 more than 5.5 billion people worldwide will live in cities and a large proportion of them close to regions prone to extreme events. It is also likely that powerful extreme events will affect several of these large urban areas in the coming decades.
“Governments and decision-makers should keep the dramatic events of 2011 in mind and recognize the potential seriousness of this situation. The insurance industry is one part of any solution for efficient catastrophe risk management. Without a real effort from all stakeholders, including governments, to develop and implement such programs, it seems inevitable that the worst is yet to come.”
Michael Butt, chairman of AXIS Capital Holdings and co-chair of The Geneva Association’s Climate Risk and Insurance Project, added: “The nature and scale of the challenge of natural catastrophes is greater than can be covered by insurance alone. The principle reason for increasing damage and loss figures are more socio-economic changes rather than changes of natural variability. A closer cooperation and collaboration between governments, industry and insurers is needed to manage disaster risks and to reduce the financial impact of extreme events.”
After discussing the most significant natural catastrophes that occurred in 2011 – the Japanese earthquake and tsunami, the Australian and Thai floods, the New Zealand earthquakes, and the U.S. tornadoes – The report sets out some “key lessons” learned, as follows:
• How risk management mechanisms particularly prevention, protection and compensation mechanisms as well as risk awareness, can significantly reduce the human and economic cost of natural catastrophes;
• The importance of a greater level of collaboration and coordination between governments, industry and insurance in the development of efficient and effective strategies for the financial management of extreme events;
• How public-private initiatives between governments and insurers can increase a country’s ability to accelerate economic and physical relief and recovery efforts. Also how such partnerships can increase the insurability of extreme events and make their coverage more accessible; and finally,
• That shared data, for example, flood risk mapping, can increase awareness and risk assessment of disasters and can reduce their economic and human costs.
While 2011 is well described as an annus horribilis, the most important lesson may well be that these events are unlikely to remain unique; future years may well produce similar natural catastrophes, or worse.
Source: Geneva Association
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