Making communities more resilient

Swiss Re partners with the US state of Alabama in an innovative private-public partnership enabling the rapid payout of funds following a catastrophe.

In 1979, when Hurricane Frederic roared over Alabama, causing billions of dollars of damage, there was one condominium in the hard hit Gulf Shores area. Today, there are over one hundred condominium complexes.

Talking to about the importance of risk management, Ben Spillers, the State’s Risk Manager, said: “Risk management by state government is essential and demands effective programs to both reduce exposure to loss and to control the cost of loss.”

He went on to say that: “Whether we are restoring a school building destroyed by fire or supporting an injured state employee until he can safely return to work, our goal is to help our client agencies quickly and at the lowest possible cost to the taxpayers. Providing this service is the Division of Risk Management's reason for being.”

Of all the hazards, the hurricane is perhaps one of the most challenging. Communities along the Gulf Coast of the United States have historically been heavily impacted by hurricanes. And the risks are growing.  In southern Florida, for example, under a high climate change scenario, annual losses from hurricanes are estimated to rise to a staggering USD 33 billion by 2030, or 10 percent of the region's total GDP. While much of the damage is covered by insurance, emergency response costs and uninsured economic losses are often borne by governments, and ultimately, taxpayers.  

It is against this backdrop that Swiss Re partnered with the State of Alabama to develop a parametric insurance solution designed to help the State weather the impact of catastrophic hurricanes.

Parametric solutions for governments, a form of public-private partnership, rapidly pay out a pre-determined amount should a disaster exceed certain physical and measurable parameters.  These partnerships help governments and their citizens by transferring the burdens of rebuilding from taxpayers to the private markets, and can cover perils ranging from earthquakes and hurricanes to droughts and floods.

As Ben Spillers concluded: “Based simply on the wind speed of a hurricane, we can now receive funds rapidly to cover our immediate costs. This transaction marks a milestone for the State of Alabama in identifying and managing key risks.”

While disasters cannot be prevented, public-private partnerships can create powerful and cost-effective antidotes to relieve some of the pain.

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