It's been said that it takes a whole village to raise a child. In that vein I would argue that it takes a whole ecosystem of actors to build resilience! The actors range from governments and major supranational institutions like the World Bank to cities, communities and individuals. The private sector has a big role to play whether it's construction, utilities, banking, software or insurance, which is my industry. Insurance has crucial role to play because of the catalytic, enabling effect it produces for the other actors. Insurance actually plays two important roles for the economy - one which supports protection and the other supports prevention. Both support resilience, development and growth.
The first role as risk absorber, provides financial support when disaster strikes in order to help those affected get back on their feet as quickly as possible. Last year, for example, the Caribbean Catastrophe Risk Insurance Facility was able to provide the governments of Caribbean island nations with USD 29m less than 14 days after Matthew struck. The city of Shanwei in China also received funds for relief and recovery very quickly after Super-typhoon Haima hit last autumn. Natural disasters like this are increasing in severity and frequency – and they can occur anywhere, even in places not normally considered to be at high risk. As well as the impact on lives, uninsured losses following catastrophes can influence countries' economic growth for several years. In spite of our efforts, not all people are protected equally: the global disaster protection gap is estimated at $1.3 trillion over the past 10 years. This figure is a reminder of the need for a broad based approach, involving international and public institutions, to help increase insurance coverage, allowing countries and their residents to prepare to bounce back faster. According to the Economics for Climate Adaptation studies, 60% of climate related impacts can be cost effectively averted with proper preparation.
The second role is that of major institutional investor, with the industry currently managing around $27 trillion worth of assets globally. Roads, railways, ports and other infrastructure are the building blocks for long-term economic and social development. They must be constructed – or retrofitted – to withstand natural disasters. This is already happening in some places: in Japan for example, many buildings are built to be earthquake-proof. In other areas it's about smarter, more resilient city planning, not least in the face of rising sea-levels and greater agglomeration in coastal cities. But stronger, smarter infrastructure requires investment. As governments struggle with high debt burdens, the funding gap for both revamping infrastructure and new projects – currently estimated at $50-70 trillion through 2030 – continues to widen. Bridging that gap will be particularly important for emerging markets, where infrastructure needs are the greatest.
As the World Bank has noted the lack of infrastructure comes at an enormous economic and social cost. Over 1.3 billion people – almost 20% of the world’s population – still have no access to electricity; 768 million people worldwide lack access to clean water; and 2.5 billion don't have adequate sanitation. To help narrow the infrastructure investment gap, Swiss Re is developing an infrastructure tradability indicator – a quantitative tool designed to help investors and policy-makers assess the progress achieved, and bring infrastructure debt another step closer to becoming a standardized and tradable asset class. Such an asset class would make the investment process simpler giving long-term investors more confidence to invest and take some of the financial load off governments' shoulders.
The world is facing many threats and changes at this time. To prepare, both the public and private sectors must take bold, decisive and joint action today in order to create the resilient societies and economies of tomorrow!
Category: Climate/natural disasters