‘Florence’ and ‘Mangkhut’ underline the role of the insurance industry
With Hurricane Florence currently threating the Carolinas and Georgia, and Super Typhoon Mangkhut causing evacuations in the Philippines, the storm season is unfortunately well upon us. In a recent New York Times opinion piece by David Leonhardt, experts have stated that the effects of climate change may cause the “sudden intensification” of cyclones. It seems like, they will become more unpredictable in the future.
The Government of the Philippines has reacted to the Super Typhoon Mangkhut by preparing stand-by funds, food, supplies and rescue of around $ 370 million before the Super Typhoon is said to make its landfall on 15 September. Next to the federal assistance, the insurance is also preparing for major pay-outs to prevent economic ruin and economic fallbacks. Given the ample protection gap of storms and floods in South East Asia, the beneficial effects and helping hand of insurance will be limited though. In the United States, insurers expect insured losses of up to $ 20 billion.
In a study, published early 2018, the Geneva Association conducted interviews with 62 C-level executives of 21 insurance companies to understand the contributions of the insurance industry to this specific challenge of climate risk management. It also looked into measures and contributions of climate adaptive investment. Especially through its prominence as risk experts, the industry helps in building up socio-economic resilience against climate change effects. Hereby, the industry advocates the shift from inaction and post-disaster reaction to an integrated risk management cycle. It favors and incentivizes methods of risk prevention and mitigation, as well as risk transfer and financing. With its considerable capital backing, the industry is also a major enabler of climate change mitigation within the context of economic development and entrepreneurial projects.
Building upon these insights, the Geneva Association has formulated three recommendations, advising on the future capacity development of the insurance industry to contribute better and more effective against upcoming climate change challenges.
“Recommendation 1: Third-party stakeholders such as governments, policymakers, standard setting bodies and regulators across sectors should work in a more coordinated fashion to address key barriers that hinder insurers from scaling up their contribution to climate adaptation and mitigation.
Recommendation 2: The insurance industry should continue to institutionalise climate change as a core business issue, expand its contributions towards building financial resilience to climate risks and supporting the transition to a low-carbon economy by collaborating with governments and other key stakeholders.
Recommendation 3: Governments and the insurance industry should explore ways to support climate resilient and decarbonised critical infrastructure through the industry’s risk management, underwriting and investment functions.”
(Geneva Association, 2018: Climate Change and the Insurance Industry: Taking Action as Risk Managers and Investors, p. 8)
Asia Catastrophe risk management Climate Change Insurance