Securing development through innovative risk management

The humanitarian crises following this year’s earthquake in Haiti and floods in Pakistan are tragic examples of the enormous human and economic toll that a single large disaster can take on a whole nation. Climate change and population growth could mean millions more are at risk in the future. To help secure the development prospects of these large populations, Swiss Re partners with governments, NGOs and international institutions such as the World Bank Group to provide insurance solutions that strengthen countries’ defences and make societies more resourceful in the event of a disaster.

Natural disasters already affect an estimated quarter-billion people every year. A changing climate could expose many more to the risks of sea level rise, crop failures, ecosystem disruptions and extreme weather. Beyond the immediate humanitarian impact, the long-term consequences of a major disaster can be severe in lesser adapted regions of the world. In the most vulnerable countries, famine and drought, spreading diseases, water shortages and human displacement can reverse years of development gains and jeopardise future livelihoods.

Making societies more resilient is therefore an urgent development priority. While most natural disasters cannot be prevented, insuring disaster risks is an important way for countries to strengthen their level of preparedness and build financial safety nets. Insurance not only protects individuals and businesses against catastrophic losses, but also allows governments to secure funding before a disaster occurs. In doing so, it reduces the financial burden to society and minimises the costs for post-disaster relief and reconstruction.

Together with the World Bank Group and national governments, Swiss Re has pioneered a number of new risk transfer solutions for developing countries that innovate in their combined use of insurance and capital market instruments. These include parametric covers for hurricane and earthquake risk in Mexico and the Caribbean , as well as weather-index solutions for farmers in Malawi . “Index insurance and parametric covers offer an attractive complement to traditional insurance products because their payouts are quicker and administrative costs are substantially lower,” says Reto Schnarwiler, Swiss Re’s Head Public Sector.

Most recently, Swiss Re joined forces with the International Finance Corporation (IFC), the World Bank’s private-sector arm, to capitalise a Brazilian insurer specialised in the surety and agro-insurance business. Combined with government investments in infrastructure, energy and agriculture, the Swiss Re-IFC deal could give a significant boost to the country’s fledgling insurance market. For Brazilian farmers, this would mean greater security through a wider range of products, including crop, livestock, forestry, and farm property insurance.

Published 7 October 2010

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