Willis Towers Watson launches global insurance facility for resilience

by Artemis on March 9, 2018

Insurance and reinsurance brokerage Willis Towers Watson (WTW) has today announced the launch of the Global Ecosystem Resilience Facility, an insurance facility designed to help strengthen the resilience of ecosystems and their communities, through the use of efficient risk transfer where catastrophe bonds may feature.

The Global Ecosystem Resilience Facility (GERF) is designed to provide innovative finance and risk management solutions to build the resilience of both marine and terrestrial ecosystems and the communities they support, using risk pooling techniques alongside financial instruments including catastrophe bonds, resilience bonds, grants, and loans.

WTW notes the risks that marine ecosystems face, as well as the damage to natural capital assets such as coral, mangroves and fisheries that erodes their ability to protect coastal communities, their economies and assets across both developed and emerging countries.

With more intense storms anticipated, along with perils such as floods, droughts, sea level rises, temperature increases, pollution and ocean acidification, coastal communities are increasingly vulnerable and the lives and livelihoods of the communities they support are at risk.

As a result, WTW says it is critical that the resilience of the environment that supports communities and natural capital assets is strengthened and protected, with financial techniques a robust source of risk linked financing that can assist in both insuring assets and financing resilience measures.

The GERF has been designed to play a role in responding to these risks, through the use of powerful analytics, incentivising environmental stewardship and leveraging innovative insurance and reinsurance protection to put development finance to work.

WTW will be working alongside science partners and leading risk carriers to achieve these goals, with the initial work of the Facility focused on protecting ecosystems such as coral reefs, mangroves and seagrasses in the Caribbean to support resilience of the fishing communities at threat from hurricanes and coral decline.

John Haley, CEO of Willis Towers Watson, explained on the launch, “The Global Ecosystem Resilience Facility is such an important initiative in helping to support the resilience of coastal and island communities to climate pressures. Dependence on the blue economy makes them particularly vulnerable to the impacts of climate related threats and other risks, and the goal of this ground breaking initiative is to help provide greater stability, and ultimately greater prosperity, to these communities.”

Rowan Douglas, CEO of Willis Towers Watson’s Capital, Science & Policy Practice, also said, “The GERF acknowledges that there are two key aspects driving changes in the risk environment: human activity and natural processes. The facility addresses both aspects; communities build resilience through sustainable practices under their control, and disaster risk finance protects against events outside of their control.

“The Global Ecosystem Resilience Facility allows for the financing of increased resilience at a large scale. This global approach is key to building a sustainable blue economy and protecting coastal communities from climate impacts. We are proud to lead the way in the development of innovative mechanisms to extend financial protection to ecosystems and to incentivise sustainable growth.”

The Facility may provide a way for institutional investors to access new sources of risk and provide necessary development financing, through financial structures such as catastrophe bonds and resilience bonds that the GERF may leverage in its work.

The GERF focuses on risk transfer and project finance as the twin financing elements of its work, with risk transfer specifically focused on risk pooling, while project finance may utilise a range of financial instruments including catastrophe bonds, resilience bonds, grants, and loans.

The goal is to provide local capacity to support climate mitigation and adaptation through a facility designed to finance increased resilience at a global scale.

The financial aspects will be linked with the regional frameworks required for governments to support ecosystem management and also support sustainable development of the so-called blue economy.

The GERF will work on understanding the risks marine ecosystems face, then on incentivising their stewardship and maintenance of these natural capital assets.

This is where risk finance will come into its own, with insurance programs designed to both protect and encourage resilience, disaster risk management, contingency planning and good stewardship, backed with financial instruments that could include catastrophe bonds or other capital markets sources of reinsurance.

Risk pooling will be used to assist regions in bridging the post-disaster funding gap, to offer a targeted, structured response to coastal communities and infrastructure, ecosystems and fisheries in particular.

Pooled risks from these regions and the use of resilience techniques put catastrophe bonds and resilience bonds as especially relevant tools that could help to provide efficient risk capacity, with contingent triggers linked to resilience efforts as well as natural peril parameters.

It’s encouraging to see a concerted effort to address resilience in some of the most at-risk regions of the world, especially so as it recognises that efficient capital markets solutions could bear the risk, while also helping to finance and incentivise resilience.

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