Last week I attended a meeting of some of the leading players working in the field of resilience and disaster risk reduction. The meeting was organized by Willis and hosted by Rowan Douglas, CEO Capital, Science & Policy Practice at the Willis Group with other participants coming from the UN, the World Bank, the International Insurance Society (IIS) and the OECD. These invited delegates from the worlds of science, policy and capital met in London, UK, to push forward a combined agenda in the lead-up to key meetings on resilience and disaster risk reduction to be held at the end of June, 2014. This was a very timely meeting given the extreme weather conditions many ICMIF member organizations are experiencing this month with floods in the UK; snow in Japan and the USA; volcanic eruption in Indonesia; and drought in the western USA.
This was the second meeting of this group which has taken on the remit of creating a new paradigm in building resilience, with insurance playing a crucial role in enhancing the understanding of risk and ways it can be managed. Two of the speakers made statements that really hit home for me: that the time for change is upon us and that the financial services industry will take centre stage.
Margareta Walhström was the key guest at the meeting. She is the United Nations Special Representative of the Secretary-General for Disaster Risk Reduction and Head of the UNISDR (United Nations Office for Disaster Risk Reduction). Margareta is responsible for updating the UN Hyogo Framework for Action* in 2015. She predicts a significant shift of the cost of disasters from the public sector to the private. Governments are failing to deal with the increasing number of disasters, as they are reacting to the circumstances rather than understanding the risk, planning for potential disasters and mitigating them. Why don’t they do this? Because it costs! This is, of course, a false economy: the cost of reacting post-disaster will continue to grow dramatically, whereas introducing pre-event risk reduction measures would reduce overall costs in the longer term. Unless government strategies change drastically then disasters will continue to affect a nation’s ability to grow sustainably.
During the meeting, our host Rowan Douglas, whose other international roles include Chair of the UN Hyogo Framework for Action – Financial and Private Sector Working Group, stated that 85% of the world’s assets were in the hands of the private sector. Furthermore, 2011 had the highest ever recorded insurance losses. To its credit, the (re)insurance industry paid out on all the claims with minimal insolvencies, demonstrating its capabilities in understanding, managing and pricing risk.
Alanna Simpson, Senior Risk Assessment Specialist, Global Facility for Disaster Reduction and Recovery at the World Bank, predicted that the amount spent on construction globally in the next 20 years will equal the amount spent in the last 6,000 years. This means we must seize the opportunity to significantly influence global building regulations as they relate to disaster risk reduction.
Going back to Rowan, our meeting host, he believes that sustainable environmental change will be a key driver of disaster risk reduction; smart capital is crucial for underwriting disaster risk; smart science will generate an ever more accurately modeled world; and smart policy will ensure risk mitigation through regulation is built into government action.
So why, I hear you ask, does this affect us as cooperative and mutual insurers? Well, I believe that two things are key. Firstly, ICMIF is an important industry partner in developing the new paradigm along with the IIS and the Geneva Association. The top scientists present at the meeting each have their role to play in modelling the world and the key policy players from the UN, the World Bank, the IAIS and the OECD are all involved already. ICMIF has been handed the opportunity to influence strategic global change by being asked to join this eminent and essential group, and we are now very much involved in it. ICMIF and its members will bring crucial case studies and data to the group from our many experiences in recent years of unexpected disasters in Japan, New Zealand, Philippines, UK and USA, to name just a few. We will also be able to share examples of innovative practices for sustainable risk mitigation which our members have already implemented as they seek to give value to their members and their communities.
Secondly, as with any global change, there are business opportunities for those who are close to the change and willing to embrace it. As ICMIF is already engaged in this process, our members will be well positioned to seize these opportunities.
As business leaders we all look for ‘game changers’ in our industry, I firmly believe that by being involved at the beginning of the process of building resilience on a global basis we can not only influence the outcome, but also better serve policyholders. Any ICMIF members who wish to be actively involved should let me know; we will need the help of ICMIF’s best and brightest strategic thinkers as we work together towards the post-2015 framework for disaster risk reduction which will come into effect at the 3rd World Conference on Disaster Risk Reduction in Sendai, Japan, in March 2015.
* The Hyogo Framework for Action (HFA) is the first plan to explain, describe and detail the work that is required from all different sectors and actors to reduce disaster losses. It was developed and agreed on with the many partners needed to reduce disaster risk – governments, international agencies, disaster experts and many others – bringing them into a common system of coordination. The HFA outlines five priorities for action, and offers guiding principles and practical means for achieving disaster resilience. Its goal is to substantially reduce disaster losses by 2015 by building the resilience of nations and communities to disasters. This means reducing loss of lives and social, economic, and environmental assets when hazards strike.