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Getting it right when tackling a global crisis

COVID-19 will make history, but it isn't the first global threat to life as we know it. And sadly it won’t be the last.

Large parts of our planet battle with natural disasters such as hurricanes, typhoons, floods and even wildfires every year. And climate change, which increases the frequency and intensity of these events, proves an existential threat to all of us. The societal impact is exacerbated by urbanisation, which increases risk exposure in densely populated areas and affects how flood waters run off. Understanding how society can build resilience to these many risks is a major challenge.

I am writing this blog from home because that's where I'm working like many of you, navigating business and family needs. Given the current situation, there is a natural sense of vulnerability I feel as I'm thinking more about our collective future and how we must act urgently to protect it for our children.

If the coronavirus pandemic has made one thing clear, it's the need to act early when a crisis strikes. Those nations that did this with strength and decisiveness are proving to be the most resilient. Countries that studied previous events and put in place comprehensive plans helped them increase their response rate.

The early information coming out of South Korea shows that they quickly embraced large-scale testing, which has generated vital data helping to deepen our understanding of COVID-19 and its implications.

Of course, most countries were willing to test, but found themselves ill-prepared for a myriad of reasons, resulting in a slower response with far-reaching consequences. Even before the end of the current crisis, a crucial lesson about the importance of preparedness in all facets of a response to major natural disasters is already being reinforced.

No time to lose

We must apply these principles – building resilience through early action and careful planning by leveraging data and technology – in the battle against climate change. Nothing is certain about the climate crisis but just as with COVID-19, we can’t wait for certainties. If we do, we'll be too late.

Swiss Re Institute’s latest Sigma report on natural catastrophes predicts global warming will lead to severe weather events growing in intensity and frequency. Although the USD144 billion losses from natural and man-made disasters last year was lower than in 2018, of those, USD136 billion were due to natural catastrophes.

Typhoons Hagibis and Faxai in Japan were last year’s biggest loss events, but the total also includes Cyclone Idai in Mozambique and monsoon rains in southeast Asia. In eastern Australia, record-high temperatures kept wildfires burning across millions of hectares of bushland.

Last year’s total losses were down from the previous year only because thankfully the United States had a less severe hurricane season. But we can’t count on that kind of good luck as the overall trend of natural catastrophe losses is steadily increasing.

Also climbing is the rate of uninsured losses: last year, USD 85 billion of losses were not covered by any form of insurance, and the gap is widening over time. Indeed, underinsurance remains a major obstacle to our resilience-building efforts.

Our role in reducing risk

As an industry, we must do more to ensure the world is better prepared to manage and mitigate the risks associated with such events. It's why we at Swiss Re spend so much time talking about how to close the protection gap. These efforts are in everyone’s interests: communities, companies and individuals will be protected from devastating economic losses, and the burden on public budgets becomes more manageable. For insurers and their reinsurance partners, it's an opportunity to provide insurance protection to new markets and new customers, but this requires commitment and further innovation.

We must let the early lessons of COVID-19 reinforce much of what we already know about how we respond, forcing each other to move quickly and adopt the approaches that lead to ever-more accurate mapping of risk. We need to leverage technology and evolve our underwriting models in order to understand patterns down to the local level. That way, we can open up insurance cover to many more businesses, people and public institutions.

At Swiss Re, we’ve already shown how this can be done in several markets. In Taiwan, for example, we partnered with one of our clients to develop a novel insurance product for banana farmers, whose crops are vulnerable to typhoon damage. Using drones that can accurately assess 600 hectares a day, loss adjustment happens faster, which means insureds get payouts sooner – even in just a few days.

Similarly, we're working with partners in Central America to develop microinsurance parametric products for small farmers covering excessive rain, drought and earthquake. These solutions provide affordable insurance with a fast payout to the farmers after a disaster. Within three years, we grew the market from 3,000 to 18,000 policies today in Guatemala, El Salvador and Colombia.

Better outcomes for all

As re/insurers, we are the world’s absorber of risks. But to provide sustainable insurance, we all need to better understand the way the warming climate affects the frequency and severity of natural catastrophes.

We know that local impacts can be hard to predict. So we must find a way to translate scientific knowledge into workable risk-assessment tools that allow us to model risk in a forward-looking way, without relying wholly on historic loss data. Such an approach must consider long-term climate trends as a key factor affecting a constantly evolving risk landscape.

We must also learn the lessons of COVID-19, not just in the need to gather data and collaborate within our industry, but also to partner with the public sector to help them manage such risks. Our data will help local and national governments invest in disaster risk reduction measures effectively, especially in areas prone to events such as flooding, storm surge and wildfires. Planning decision and infrastructure investments must be more strongly influenced by resilience criteria, and not solely based on economic grounds.

A good example is the Indonesian government's natural disaster insurance programme, which is supported by a consortium of 56 insurers and reinsurers led by Swiss Re. The programme helps protect critical public assets such as ministry and institutional buildings against earthquake, flood and fire. With the programme planned to continue through 2023, the scheme provides coverage for 1,360 buildings and assets owned by Indonesia's Ministry of Finance.

Proactive risk management like Indonesia's approach can help protect whole economies, strengthen local communities and ultimately create better outcomes for all. It also provides the security and predictability to attract critical investment in innovation and infrastructure.

At the same time, data can help us improve how we quantify risk. It will allow us to move away from blanket area risk ratings and identify risk down to individual premises and locations.

But one thing is clear above all. We must act now if we are to protect our planet and its people from climate change – one of humanity’s greatest threats, and if we get it right … greatest opportunities.



Natural catastrophes:

How can we be more resilient?