Encode Disaster Resilience in the Global Financial System: Willis Re Chairman

By | September 16, 2014

“Disaster resilience should be encoded into the global financial system,” said James Vickers, Chairman of Willis Re International, in an interview at the Reinsurance Rendezvous in Monte Carlo. “It’s a big opportunity for the insurance industry.”

Vickers was addressing the current state of the reinsurance community when he made those remarks. Overall the reinsurers are in good shape, but there are warning signs, as the introduction of additional capital into the industry has resulted in increasing competition for opportunities to employ it. “The challenge is – how do we stimulate more growth?” Vickers said;” how do we ‘grow the cake’ for everybody?”

While there are opportunities in emerging markets, and products are being developed to address growing risks, such as cyber coverage, Vickers pointed out that there are large sectors where there’s simply no insurance coverage. “It’s pitiful,” he said. As an example he cited the floods in Eastern Europe – the worst in 60 years – that caused between $5 and $6 billion in economic losses, none of which were covered by insurance.

Willis has taken a leading role in promoting the kind of government, NGO and re/insurance industry cooperation that could actually result in greater resilience to natural disasters.

The participation of the insurance industry in such efforts is a natural consequence of the fact that it is “measured by disasters, and no one else is,” Vickers said. “We have the analytical tools, the capital and the models available.” As an example, he pointed out that urban buildings generally need to be renewed about every 50 years. Part of that cost could be financed by the re/insurance industry.

The databases that the industry has compiled are therefore of vital importance in establishing risk parameters for the billions of dollars’ worth of property that is uninsured. Banks and other entities, including governments and NGO’s, could thereby assess the costs of future natural disasters, and form participatory arrangements with the re/insurance industry to defray some of them when losses occur.

Vickers also explained that the reinsurance industry is changing in ways that are permanent, and which have “expanded the tasks” expected of brokers, primary insurers and reinsurers. “You have to add value for your clients; you can no longer just compete on price,” he said. As a result, there’s now considerably more involved in assessing the risks faced by the ultimate client, the policyholder, requiring the skill and expertise of all three sectors “to address the client’s real needs.”

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