CEO Inga Beale speaks at a Lloyd’s hosted event in partnership with the UK Department for International Development (DfID) as the Commonwealth Heads of Government Meeting (CHOGM) gets underway.
Good afternoon and a very warm welcome to Lloyd’s, the world’s specialist insurance and reinsurance market, for this event in partnership with the UK Government’s Department for International Development.
For many here today, this will be your first visit to Lloyd’s. Just above us, is our world-famous insurance market, where the world takes its risk. We have 330 years of history, with a common thread that runs right through – our long-standing role in enabling human progress.
And that is, in essence, what we are here to discuss today – and particularly how we, Lloyd’s, together with the global insurance sector and the UK’s Centre for Global Disaster Protection, support and help protect the economic growth and development of the Commonwealth – its 53 countries, and 2.4 billion people.
Lloyd’s is delighted to be working in partnership with the Department for International Development, and the Centre for Global Disaster Protection. The unveiling of this initiative, and the new programmes we have just heard about, couldn’t have come at a more important 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.
As the Secretary of State has mentioned, last year we saw the incredible impact of severe weather events and natural disasters that threw millions of lives into chaos, with more than 11,000 lives tragically lost.
According to analysis published last week by Swiss Re, 2017 was the single worst year ever for natural catastrophes, with losses to the insurance sector totalling $144 billion, significantly more than the previous ten year average of $58bn. But preliminary estimates for the total economic losses could be up to $330bn.
Insurance exists to provide critical support in times of disaster, enabling quick economic recovery and increased resilience to future disasters. But sadly, many of the world’s most vulnerable and hardest hit countries also have the biggest protection gap, meaning that recovery is slow and costs so high that rebuilding takes significantly longer, with much of the cost resting on the government and its taxpayers.
A prime example is the cavernous insurance gap in Ecuador that left the government footing an estimated $3.3bn bill after an earthquake struck in April 2016. In contrast, over half of New Zealand's $30bn of economic losses in 2010 and 2011, following the destructive earthquakes in Christchurch, were picked up by international insurers.
Underinsurance is a major problem across the world. Today, nearly 90% of economic losses caused by natural disasters in low-income nations remain uninsured.
And the World Bank estimates 26m people are pushed into poverty annually, due to the impact of droughts, flooding and powerful storms. For example, more than half a million homes were badly damaged or destroyed by the 2015 earthquakes in Nepal, but most people whose houses were severely damaged continued to live in temporary and improvised shelters more than 18 months later.
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.
We are delighted that risk transfer is recognised in the UN Sendai Framework for Disaster Risk Reduction - a15-year, voluntary, non-binding agreement which recognises that the State has the primary role to reduce disaster risk but that responsibility should be shared with other stakeholders including local government, and the private sector.
The importance of risk transfer is also recognised through the InsuResilience Global Partnership for Climate and Disaster Risk Finance and Insurance Solutions, which aims to strengthen the resilience of developing countries and protect the lives and livelihoods of poor and vulnerable people against the impacts of disasters.
And the UK government’s Centre for Global Disaster Protection is another bold and much needed initiative, acting as a call to arms for the insurance sector to play its part. It builds on the important steps already being taken around the world to strengthen disaster preparedness, build resilience and address this enormous insurance protection gap, and ensure the world’s most vulnerable counties are more resilient when disaster does strike.
The Caribbean Catastrophe Risk Insurance Facility, the first multi-country risk pool in the world paid out millions last year in response to hurricanes Harvey, Irma, and Maria – I’ll leave its CEO Isaac Anthony, a member of today’s technical panel, to give you more detail on this.
And the African Risk Capacity, the continent’s first natural disaster insurance pool, is another example of a public private partnership already underway.
Furthermore, in 2016, the Insurance Development Forum (IDF) was launched to help tackle this problem. This is a unique public private partnership between the World Bank, the United Nations and 13 leading insurance firms, and 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 $445m capacity along with the expertise to develop reinsurance solutions for natural catastrophe risks in emerging economies.
In many other developed countries, sophisticated public private insurance partnerships already exist. The UK’s aim of stimulating insurance markets in poorer countries through the Centre 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.
Lloyd’s is proud to have co-sponsored the first Innovation Lab of the Centre, focussed on developing new financial instruments that combine incentives for resilience with risk transfer. The Lab was a dynamic working session with more than 50 participants working together from across the insurance, investor, engineering, humanitarian and development communities. And today we are publishing its preliminary findings. You can view the full report here.
Lloyd’s has always been known as a pioneer, able to take the risks that others dare not, enabling human progress. We wholeheartedly support the Centre for Global Disaster Protection and look forward to working in partnership with the World Bank, United Nations Development Programme, Donors and the wider insurance sector as we work together to build a more secure and resilient future for the world’s most at-risk countries and communities, including across the Commonwealth.