Risk transfer (reinsurance) essential to meet global resilience goals: IDF

Leaders of international public and private sector organisations have underlined the importance of risk transfer mechanisms and capacity in achieving global resilience and sustainable development goals set by the United Nations (UN) and the World Bank.

The Insurance Development Forum, a group formed of insurance and reinsurance industry representatives alongside the World Bank and the UN, met in Singapore recently to commence work on the process of building global resilience and sustainability.

Leaders from both the public and private sector stressed the vitality of robust risk transfer if goals set out by the World Bank and the UN are to be achieved in the coming months and years.

Samuel Munzele Maimbo, Practice Manager, Finance Markets at the World Bank Group, highlighted the importance of the collaboration between global insurers, reinsurers, and other risk transfer markets, such as the insurance-linked securities (ILS) space and beyond.

“From the World Bank Group’s perspective it has become increasingly apparent that without the right risk management tools a lot of our development work will be much less effective as people could be pulled back into poverty due solely to one or two natural disaster events,” said Maimbo.

Maimbo highlights an important element of the growing need and desire throughout the world to greatly improve global resilience. Strengthening the resilience of underserved and vulnerable regions, such as parts of Asia, Latin America, and Africa, for example, will be much harder to achieve and sustain without adequate risk transfer.

While projects to improve infrastructure are underway, natural and man-made disasters will still take place, and with the impacts of climate change expected to exacerbate the frequency and severity of disasters, according to some in the industry, projects could be ruined or significantly set-back when an event takes place.

“With this partnership we have a unique opportunity to combine private sector tools and resources with public sector policies and incentives so that we can scale up successful insurance programs faster to respond to an increasing number of extreme disaster events,” continued Maimbo.

The global protection gap (difference between economic and insured losses post-event, or under-insurance itself) is regarded as the insurance and reinsurance sectors great failure, but also it’s biggest opportunity, with vast exposures in a broad selection of peril regions requiring greater insurance penetration.

Stephen Catlin, Chair of the IDF Steering committee, Executive Deputy Chair of global re/insurer XL Catlin, and Chair of the Association of Bermuda Insurers and Reinsurers, underlined the opportunity that the IDF formation holds for the risk transfer world.

“This public private partnership between insurers, the United Nations and the World Bank Group creates a once in a lifetime opportunity for insurers’ risk management skills to be applied to close the protection gap – affording benefits of insurance in helping protect people and property from natural disaster risk.

“And protecting society by preventing future death, destruction and injury by building a more resilient infrastructure,” said Catlin.

The insurance sector is well placed to assist the UN and World Bank in achieving its resilience and global sustainable development goals, owing to its wealth of experience in managing, financing and protecting a broad range of risks in different regions.

Quentin Coolen, senior political coordinator at the United Nations Development Program (UNDP), highlighted this point, saying, “Who better than the insurance industry to contribute a better measurement of risk, highlighted this notion? Clearly, the International policymaker community and insurers need each other.”

But for underserved regions that lack adequate data, regulation and infrastructure, both public and private sector organisations will need to work together in order to boost insurance penetration, ultimately increasing resilience against natural disasters, climate change, and extreme weather events.

Rowan Douglas, Chair of the IDF Implementation Committee, who recently explained the need to connect “smart capital” with risk, highlighted the need for improved data and analytics in order to broaden the reach and impact of insurance solutions.

“On Monday we heard the Deputy Prime Minister of Singapore speak to two core challenges for Asia in growing its insurance markets: 1) adapt regulation so that insurers can invest in infrastructure; and 2) build the data analytics so that insurers can measure risk and expand the sale of insurance products protecting against catastrophes.

“This is a powerful endorsement of the IDF view that risk analytics and risk sharing essentials of insurance will be at the mainstream of the debate on resilience in meeting sustainable development goals and closing the protection gap. There is an alignment of economic interests to help achieve social outcomes. This effort will unlock insurance demand,” said Douglas.

The final point is an interesting one, and one that should drive insurers, reinsurers, and ILS players to increase penetration via innovation and effort to broaden the reach of their products.

With the insurance and reinsurance markets under significant pressure owing to a range of headwinds, which includes a supply/demand imbalance that has ultimately resulted in rate declines across the majority of business lines for some time now, the need for increased demand is as high as ever.

So by utilising the features and capacity of the insurance and reinsurance sector, along with innovative and efficient tools of the ILS space, such as parametric triggers, risk transfer counterparties can hike demand while also supporting the improvement of global resilience and sustainable development.

President of the International Insurance Society, Mike Morrissey, said; “The core capability and skill sets of the industry in assessing and measuring risk. We can transfer these skills to the public institutions. Public infrastructure is going to be financed by pension funds and insurers. These are the reasons the UN and World Bank Group have valued this association with the insurance industry.”

The message from the IDF and leaders of international public and private sector entities is clear; collaboration is needed to ensure global resilience and sustainable development goals are achieved, and that the risk transfer landscape has a very important part to play.

“We are now in the spotlight and we have to deliver meaningful change – that is our intent. There are both altruistic and economic reasons for insurers to engage to speed the availability of insurance to protect people and property particularly in the developing world,” said Catlin.