Insurance and Climate Change column

Global Risk Investment May R!SE With U.N., Willis-Backed Initiative

By | January 15, 2015

There is opportunity in climate change.

That’s the frown-upside down view being taken by at least one large insurance broker under part of a global initiative to heighten the awareness of global risk and investing opportunities.

Operating under the umbrella of the United Nations, R!SE is a multi-stakeholder initiative focused on mobilizing businesses, the public sector, academia, society the insurance industry and investors to make investments “risk-sensitive,” as well as creating “risk-resilient societies.”

The initiative is led by the U.N.’s Office for Disaster Risk Reduction. Others partners include PricewaterhouseCoopers, the Economist Intelligence Unit, Florida International University, Principles for Responsible Investment and AECOM.

The insurance industry partner is London-based Willis Group Holdings plc. The large international broker is tasked with identifying possible solutions in the fields of insurance and reinsurance.

The R!SE mandate is to facilitate the exchange of experience and knowledge to implement tangible disaster risk reduction projects through eight streams of activities: strategies for global business; risk metrics for economic forecasting; industry sector certification; education; principles for responsible investing; resilience of cities; insurance; and resilience of U.N. programming.

The initiative is built on the idea that the accumulation and concentration of risk is beyond any single nation to manage.

“Public-private sector collaboration has already proven its worth in the 2011 disasters in Japan and New Zealand,” a primer on the initiative states. “The opportunity before us is to unlock the broader potential to de-risk our future, your future.”

The repeated use of the term “risk” makes clear the call for the involvement of the insurance industry in the initiative, but there’s another potential motivation for insurance professionals.

“We recognize that there’s a massive business opportunity in this for both ourselves as brokers and intermediaries and also for the larger insurance and risk industry, both our competitors and primarily the carriers and reinsurers,” said George Haitsch, chief operating officer of Willis North American global risk solutions.

The opportunity Haitsch sees is among the significant, largely unreached, sectors of the global economy and geography addressing matters of resilience – a way to do that is through selling insurance in places where risk financing demands have yet to be fully met.

For example Africa is a continent in need of better catastrophe modeling, more resilient development, education and investing – among the eight streams of activities targeted by R!SE – and a place where insurance products are sparse.

“The opportunity is there for small to medium-sized businesses to tap into insurance financing and risk financing that’s here in the United States,” Haitsch said. “Our biggest and most strategic clients are already there. There are massive opportunities in countries like Nigeria, and other parts of Africa. Large companies like Coca-Cola, and Unilever, they’re already there. If we’re looking down the road in the short-term and looking for explosive growth, we need to look at these places and ask ourselves, ‘What can the insurance and risk community be doing to get in front of that?'”

Haitsch points out that insurance for flood, fire, crops and even auto is scarce or non-existent in many of these far-flung places that are in many cases the most exposed to the effects of climate change and are therefore of great international focus.

However, R!SE isn’t just an effort focused on areas abroad.

Boston is one of the official kick-off spots for the initiative. On Jan. 29 the U.N.’s Office for Disaster Risk Reduction and R!SE partners will discuss implementation of the initiative. Boston Mayor Martin J. Walsh will speak, along federal and state emergency management and environmental leaders.

The ultimate idea behind the initiative is that more risk-sensitive investment will create more “shared value” and give businesses and governments a fighting chance when disaster occurs.

“When devastating earthquakes hit New Zealand in 2010 and 2011, at least one company was prepared,” according to R!SE. “Energy provider Orion invested $6 million into making its utility network disaster resilient and as a result was able to continue operations through its upgraded facilities during and after the earthquakes.”

The company is estimated to have saved between $30 and $50 million in asset replacement costs, and Orion contributed to substantial savings for Christchurch’s economy because of its ability to continue to provide electricity during and after the disaster, according to R!SE.

Once there is enough buy-in, carriers and brokers can then start to think about bringing alternative products to countries where there are currently none available, Haitsch said.

“That’s going to enhance the insurance capacity and going to increase corporate sustainability worldwide,” he said.

Aside from all of that, Haitsch believes that in calling upon insurers to help with this initiative the U.N. has recognized the global importance of the insurance industry.

“The United Nations is basically saying ‘Holy cow, insurance is incredibly valuable in the global economy,'” Haitsch said.

R!SE Program Summary

Topics Market

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