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09 Apr 15 06:31

NHK, Yomiuri and Asahi, all well-known Japanese media recently featured the SR study "Mind the Risk" which ranked Tokyo-Yokohama metropolis as one of the most earthquake-prone cities in the world.
It is a timely topic when we remember the 20th anniversary of the Kobe quake and the 4th of the Tohoku quake. These events support the study's result that all major cities in the country face one of the highest threats in the world. People may become complacent about the lessons learned from recent events, particularly when witnessing the immense mitigation efforts post event.
A common question raised during the interviews was why Japanese cities are still ranked at the top despite their greater awareness, better preparedness and tremendous mitigation efforts over the last 20 years. Some were puzzled, wondering what else a society can do to promote resilient cities. Indeed this is not an easy question to answer. I very much look forward to a follow-up version (if possible) of the "Mind the Risk" study which would explain exactly what adaptation efforts and priorities should be put in place for each large city at risk in order to save losses in the most effective way.

The Third UN World Conference on Disaster Risk Reduction (WCDRR) @ Sendai presented exactly the opportunities for such public debate on how to reduce the natural catastrophe risk. During the three-day conference in March, the Geneva Association and Tokio Marine co-hosted a public forum called "Insurance as contributors to problem solving and impact reduction". Attended by industry experts, policymakers and NGOs, the forum discussed how the insurance schemes can be utilized more effectively to help tackle the societal issues. Swiss Re also contributed to the Forum: Steve Arora moderated one of three panel sessions and Ivo Menzinger was a panelist on the topic of public-private partnership. A key challenge is how the industry's wealth of knowledge can better serve the needs for social resilience.

Here are the key messages that I took away from the 5-hour intense discussion:
The public sector has come to recognize that the insurance industry can be a catalyst for change and have societal impacts. The question is whether the industry can take the lead responsibility for both risk reduction and risk transfer mechanisms by working together with policy makers, NGOs and NPOs. Clearly, the public sector expects that the industry goes beyond merely providing existing insurance policies. The insurance value chain starts from there but we can do much more.
In terms of nat cat risk, the insurance industry has better exposure information than anyone else. The industry understands which regions exposure have been growing and shifting. We can study where insurance protection is inadequate (although I would say that the industry is still in the learning stage for full exposure transparency, e.g. Who could have captured the Thai flood exposure well in advance?). The standard exposure format was developed, and increasingly the industry captures geospatial data in a chronological manner which can be transferred and shared for commercial and public use.
It is the industry which triggered, developed and utilized full-fledged nat cat models as an integral part of corporate decision making. It's amazing that underwriters can distinguish high risks from low risks, determine the price for a given exposure and vulnerability, and even calculate the impact of a risk reduction investment on the premium to be charged.

The key question remains: What we can, will or should do with such exposure data, modelling expertise and risk taking capabilities in relation to reducing risks?

I believe that the industry can drive insurability and demand for nat cat protection with our innovation (Who knew 50 years ago that quake risk would become insurable and is now considered a commodity cat product?). We can take the critical responsibility to give clear incentives for those who achieve risk reduction. This would bring a business opportunity when no one else can complete the task of taking "full residual risk" after servicing the appropriate risk reduction. We are becoming better at providing such risk consultancy advice on individual level, i.e. people, property, or commercial facilities. Why can this system not be enlarged from individual risks to infrastructure risks, to a city level and even to the government, regional or global level? I view this as a compelling story after witnessing the large economic loss and the high gap in insurance protection following the Tohoku quake: a vast economic loss of USD 210bn vs an insurance loss of USD 36bn, means that the 83% loss has not been insured.

Don't you agree that we can do better?


Category: Climate/natural disasters: Climate change, Disaster risk, Earthquakes, Floods/storms, Resilience

Location: Sendai, Miyagi Prefecture, Japan


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