2015 Global risk ambassador's briefing: closing the protection gap

As individuals we encounter risk in many things we do. When risks overwhelm us we turn to our governments for relief, support and solutions. But what happens when government budgets are already under pressure, and the economy at large is impaired?

At Swiss Re's 7th Global Risk Briefing for Ambassadors we invited top foreign diplomats posted in Switzerland to discuss today's global risk landscape and what lies beyond the horizon. Hosted at Swiss Re's Centre for Global Dialogue, the annual Risk Briefing promotes dialogue between government institutions and the private sector about creative approaches to developing solutions for transferring risk. Such events are part of a comprehensive strategy of stakeholder engagement. Our ongoing dialogue with clients and partners helps develop effective responses to key issues, and raises awareness of both the risks and the opportunities.

"Every dollar spent on prevention saves society between 5 and 10 USD in losses," said Martyn Parker, Swiss Re's Chairman Global Partnerships. "Today 75% or more of economic losses following a disaster are uninsured. We call this a protection gap."  He went on to outline four different protection gaps that can impact society on a large scale if unaddressed: climate change and natural disasters; mortality; urbanization and infrastructure investment; and emerging risks.

Building resilience

Despite an increase in insurance penetration around the world, economic losses are increasing at a faster pace. Why's that? For one thing, more people than ever before are living in cities. People and assets have become increasingly concentrated in urban areas making catastrophic events both riskier and costlier. "The situation looks very different if the loss is insured, said Parker. The first hit is lower, the rebound much stronger – and the cumulative effect can even be positive, up to 2.4% of GDP." One solution that releases funds for relief and reconstruction immediately – if the criteria are met - is parametric insurance. Parker explained that parametric insurance also relieves strain on government budgets, by transferring the risk to the capital markets in the form of a bond, serving as an attractive alternative investment.

The benefits of an enabling environment

Though less visible, the mortality protection gap is a ticking time bomb for society. It's defined as the difference between the protection needed, and the protection in place, in order to maintain dependents' living standards following the death of the primary breadwinner. The gap is huge, estimated globally at USD 86 trillion – or in Asia-Pacific, for example, at as much as USD 41 trillion. While governments alone cannot be expected close this gap, they can support their citizens by presenting an enabling regulatory environment and incentives for viable financing solutions – including insurance.

Working towards a better future

Parker closed the briefing with a call for a strong set of clear policy signals from the world's governments to support the environment needed to help tackle environmental risk and build resilience on a wide scale. "What is important to recognize is that the goals of achieving economic growth and reducing risk are by no means in conflict," concluded Parker. "Our partner, Judith Rodin, at the Rockefeller Foundation, even talks of a Resilience Dividend. If properly enabled and incentivized, partnering to address risk and build resilience has the potential to improve our common future in countless ways."

The briefing took place just days ahead of the UN World Conference on Disaster Risk Reduction in Sendai, Japan, which aimed to update an important framework that joins the public and private sector to address key protection gaps.

Published 17 April 2015

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