Photo of Global Risk Briefing audience

Managing risks in an ever more interconnected world

Swiss Re hosted the fourth Global Risk Briefing for Ambassadors in Bern on 22 March. The event focused on the enormous losses due to natural disasters in 2011 and the related disruption of supply chains in an ever more interconnected world.

The annual briefing gives Swiss Re experts and senior diplomats the opportunity to engage in dialogue on ways governments can develop a more systematic approach to manage large risks, and to show the contribution re/insurance can make in this process.

Swiss Re CEO Michel Liès outlined that 2011 was truly an annus horribilis of natural disasters. The year started with another devastating earthquake in New Zealand, followed by a massive earthquake and tsunami in Japan, and continued with storms and floods in the Philippines and Thailand, earthquakes in Turkey and severe drought in the Horn of Africa. With an economic loss of over USD 350 billion, 2011 turned out to be the most-expensive year. Only around USD 100 billion of the USD 350 billion was insured – the second-highest loss burden for the industry.

Natural catastrophe losses are on the rise and there is a huge gap between the factual, economic losses and the insured ones. But Liès also pointed out that Swiss Re is taking this challenge seriously, not only as a large reinsurer but also as a provider of expertise and knowledge to insurers and governments alike.

Highlighting linkages

Property specialist Peter Buetikofer illustrated how losses from natural catastrophes are interconnected with global supply chains. Besides direct, visible and physical damage, there are frequently "hidden" losses due to business interruptions. For example, a paint plant near the Fukushima nuclear facility that made a unique pigment ceased production after the devastating earthquake. This was a severe blow to car manufacturers in various countries who were unable to customize ordered vehicles due to the lack of colours based on that pigment. Such losses are typically not insurable.

The good news is that business interruption losses are insurable when there is physical damage at a named supplier or customer plant and complete risk information and statistics are available.

An innovative approach to flood risk

Swiss Re's flood expert Jens Mehlhorn pointed out that flood losses are rising and will continue to do so. He illustrated the challenges of managing flood risks in the face of climate change. In addition, growing population and economic activity lead to increasing values in flood-exposed areas – resulting in increased vulnerability. The 2011 Thailand flood is the largest insured fresh water flood loss in history.

One huge challenge after the Thailand flood is identifying other flood hot spots in the world, particularly those with hidden interconnected risks that may create large loss potentials in other countries. To that extent Swiss Re is currently enhancing CatNet®, its natural hazard information system, with global flood zone maps. These maps will help observers understand which areas are at risk for flooding.

Building resilience in agriculture

Agriculture specialist Reto J. Schneider discussed risk management strategies in agriculture, including the avoidance, prevention and minimisation of risks. Based on a case study in Kenya, where local and international partners introduced multi-peril crop insurance, he explained how successful agricultural risk frameworks in developing countries can be built. By 2011, over 1,000 farmers in 15 districts of Kenya were insured. When excessive rainfall and drought hit the country in 2008 and 2010, farmers were compensated for their losses from the insurance product: no government subsidies were used.

In the discussion with the ambassadors and senior diplomats, it became clear that governments will need to look more into public-private partnerships to cope with the challenges of managing large risks in the face of depressed public sector finances.

Swiss Re has a strong track record of working with public sector entities in developing new solutions to cover risks in an ever more interconnected world and exploring new ways to manage large risks.

Published 5 April 2012

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