Partnership, perspective and patience: How insurers and the public sector must work together to develop greater climate resilience

It is, perhaps, one of the insurance industry’s most intractable challenges. How do you persuade people to think carefully about the risks they face − and then take positive steps to mitigate against them? The greater the risk, the greater the levels of anxiety it can trigger, leading to a failure to act.

In the case of climate change, the risks are of an unprecedented magnitude and urgency. Addressing them requires a new way of looking at the problems and their possible solutions.

This theme was highlighted in a panel session at the Insurance Development Forum Summit 2021. The session, In Conversation With CEOs & Public Sector Leaders - Stewarding the Transition: The Role of Insurance in Enabling Resilience, featured some of the leading figures of the international insurance industry and representatives from the public sector and NGOs:

  • Achim Steiner, Administrator, UNDP & Co-Chair of the IDF Steering Committee
  • Christian Mumenthaler, CEO, Swiss Re
  • Ingrid-Gabriela Hoven, Managing Director, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)
  • Michel Liès, Chairman, Zurich Insurance Group & Deputy Chair of the IDF Steering Committee, who acted as the session moderator.

The protection gap

There is a psychological phenomenon all insurers must overcome when encouraging both individuals and governments to put adequate protection and risk mitigation measures in place, Swiss Re CEO, Christian Mumenthaler, told the panel.

When faced with planning for unwelcome events, we experience something called anti-magnetic thinking, he explained: “You have to think about risk, you have to think about negative things, and our brain doesn’t like to do that – so it’s very hard”.

It can lead to the development of a protection gap in the daily lives of people and organisations, where risks are not insured. It has parallels where international aid and humanitarian disasters are concerned, too. Developing economies can find insurance simply too expensive, but when hit by a natural disaster find themselves in urgent need of help. The urgency created by the climate crisis means such problems are likely to become more prevalent.

Giving a hypothetical example of a past disaster, Mumenthaler said: “Donor countries scrambled together, tried to get the funds, (but) it takes six months – then they don’t know … how to distribute it. It takes years sometimes. And things are not reconstructed.”

To counter such challenges, proactive assessments of risk and damage are needed. They need to be part of a coherent, collaborative strategy that would help not only the developing countries hit with the problem, but those seeking to help, too.

The need for a new perspective

Ingrid-Gabriela Hoven, Managing Director, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) agreed with Mumenthaler.

“In some countries, actually, you have prevailing budgetary rules [that] make it difficult to invest into insurance schemes if it is sovereign risk coverage,” she said. Redefining such rules could help pave the way for improved cover from new products and schemes that are suited to these new markets.

There needs to be a change in outlook and understanding in the wider international community, too, Hoven said. There is a temptation, she pointed out, to regard the involvement of international insurance companies in developing economies as a negative influence. Hoven then paraphrased some of the criticism she has encountered: “They (meaning poorer countries) are (the ones) that are actually suffering from the impact of climate change. How can you actually ask them to become an insurance holder?”

The reality is, there is what Hoven described as “a very huge gap between those people that are protected (by) personal safety nets (and) insurance schemes, and the economic losses that they face due to climate change”. Some estimates, she said, value that gap at around USD 1.2 trillion “across healthcare mortality and climate disasters”.

The tipping point

Despite the obvious challenges, Mumenthaler said he believed that when it came to climate change, there was a shift in thinking that represented a tipping point.

“It’s my personal hypothesis that basically most people on Earth are starting to see the consequences of climate change,” he told the panel.

“Wherever you go – or you went before COVID – you see people will tell you how things have changed and how they can see it themselves,” Mumenthaler added.

“And that’s psychologically just a huge difference between the theory that some people talk about, to something you can experience yourself, including the negative consequences of it.”

This shift in thinking should be exploited, says Mumenthaler, to find ways to help change the perception of insurance for climate risk, reframing it as something positive.

However, this cannot be achieved through the efforts of the industry alone, the panelists agreed. It will require close cooperation and collaboration between governments and the insurance sector.

Collaboration and patience

Achim Steiner, Administrator at the UNDP and Co-Chair of the IDF Steering Committee, gave two examples of how the industry and governments could work together.

Firstly, the public sector should lean on the insurance industry’s ability to scale rapidly and meet the challenge of closing the protection gap, boosting climate resilience as much as possible with existing solutions.

Secondly, the international community should create new regulatory environments so that insurance is a realistic, practical option at a governmental level, as well as the personal.

“This collaboration has an extraordinary opportunity to … drive the frontier of insurance markets towards the real challenges of the 21st century,” Steiner said.

“If we cannot find a way of managing these risks better, then they will break us – whether economically or in societal terms or in terms of natural disasters.”

Steiner reiterated the need for ongoing collaboration between the insurance industry, governments and organisations like the UN.

Hoven echoed that point and called for greater levels of understanding. “I would like to ask the private sector, stay at our side, be patient,” she said. “We won’t actually change the world overnight, but … we can really see progress, so stay with us, with the public sector agencies … to create this new vision and the new markets … to create resilience for millions of people who need it.”

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At Swiss Re, we firmly believe that we are smarter together! The world is currently facing major challenges and tremendous opportunities. Many of these are associated with climate change and the speedy development of digitalisation.