By Inga Beale
Amid all the noise around Brexit, it is great to see the British Government lead on the significant issue of global underinsurance.
At the G20 conference in Hamburg, UK Prime Minister Theresa May unveiled a new London Centre for Global Disaster Protection. Her plan is to use the wealth and expertise of the UK insurance sector to help build resilience and long-term prosperity for developing countries.
This comes at a crucial time. The frequency and cost of natural disasters are on the rise, with direct losses in the past decade estimated at $1.4 trillion globally.
Those losses are most keenly felt in the world’s poorest countries that are on the frontline of climate-change driven extreme weather events and inevitably are the places least able to fund recovery efforts.
Today, nearly 90 per cent of economic losses caused by natural disasters in low-income nations remain uninsured. This means those countries find it difficult to restore vital infrastructure and help local communities and businesses back on their feet.
The World Bank estimates 26m people are pushed into poverty annually, due to the impact of droughts, flooding and powerful storms.
Insurers have a front-seat view of the problem. So we have a responsibility to help solve it and turn this situation around. But to have a shot at it, we need collaboration between governments, here and abroad, as well as the insurance industry.
That’s why it’s so exciting to see the UK government take this bold step, with a call to arms for the insurance market to play its part. It builds on the important steps already being taken around the world to address this enormous insurance protection gap.
The Caribbean Catastrophe Risk Insurance Facility, the first multi-country risk pool in the world and the African Risk Capacity, the continent’s first natural disaster insurance pool, are examples of public private partnerships that are already underway.
Furthermore, in 2016, the Insurance Development Forum (IDF) was launched to help tackle this problem. A unique public private partnership between the World Bank, the United Nations and 13 leading insurance firms, it aims to give access to modern risk management practices for vulnerable countries and cities with a goal to extend the benefits of insurance to an additional 400m people by 2020.
As part of this, a group of businesses at Lloyd’s have launched a Disaster Risk Facility which pools $400m capacity along with the expertise to develop reinsurance solutions for natural catastrophe risks in emerging economies.
Countries with greater insurance coverage have faster economic recoveries after a disaster, but almost as important, they also tend to be more resilient to future disasters.
A cavernous insurance gap in Ecuador left the government footing an estimated $3.3bn bill after an earthquake struck in April last year. In contrast, over half of New Zealand's $30bn of economic losses in 2010 and 2011, following the destructive earthquakes in Christchurch, was picked up by international insurers.
In many other developed countries, sophisticated public private insurance partnerships already exist. The UK’s aim of stimulating insurance markets in poorer countries is a sensible and commendable approach. If it works well over time it will reduce dependence on foreign aid, help people rebuild communities after disaster strikes, and build up resilience to protect long-term economic development and growth.
Importantly, the UK’s new proposals provide a vehicle for the London insurance market to share this load.
This isn’t about enriching the pockets of the City’s insurance companies. This initiative is about building a sustainable approach for developing economies to understand the insurance products available and provide access to those products.
It’s time the industry stepped up, working with the public sector in committing billions of dollars of capacity to underwrite these risks and provide the safety, security and stability so desperately needed by the world’s most exposed economies.
The London insurance market can support developing countries when they are hit by famines, droughts or floods, by providing funding that helps communities and the wider economy to recover more quickly, re-housing families, rebuilding infrastructure and supporting local businesses.
This is a market that has vast experience of underwriting disaster risks around the world, and a reputation for quickly providing the financial support when the worst happens.
Now is the time for insurers to act, to help tackle the crippling underinsurance threatening global economic prosperity. We can’t claim to be an industry that does social good if we don’t use our capital to underwrite the risks that bring countries to their knees and push millions into poverty.
Lloyd’s has always been known as a pioneer, able to take the risks that others dare not, enabling human progress. We welcome this opportunity for others across the industry to come together and play their part.
This article was first published by CityAM on Friday 21 July 2017