Challenges and Opportunities for the
Insurance Industry in Extreme Events
and Climate Risk Management
Proposal for the Development of Geneva
Association Strategic Priorities and
Implementation Plan in EE + CR
By Maryam Golnaraghi, Ph.D.
13 April 2015
Background: Latest international developments and trends:
Policy, Regulatory, Financing, Management of EE + CR
R&D in Science of EE + CR, Data and Operational Services
Reflections: Challenges and opportunities for the insurance industry
in EE + CR
Strategic positioning and planning of GA’s research and advocacy in EE +
CR
Discussion and feedback
AGENDA
2
International Framework Agreements Related to EE + CRDifferent negotiation processes, approaches, targets, focal points
and implementation mechanisms at international, regional and national levels!
Strategic engagement requires mapping and prioritization!
DRRClimate Change
Climate ServicesIV. Global
Framework for Climate Services
(GFCS) - ICBS• Operational climate
services
Sustainable Development Goals (SDGs)
II. COP- UNFCCC Agreements
• Kyoto Protocol• Bali Roadmap• Cancun agreements
Durban Outcomes• Doha Climate
Gateway• Warsaw Outcomes
Next: Paris COP 2015
I. SDGs (UN Summits)
• Post 2015 Development Agenda
• Johannesburg Implementation Plan
• Agenda 21
Next: Financing Development (Addis Ababa July 2015)
Next: UN Summit 2015
III. UN International
Strategy for DRR(UN-ISDR)
• Sendai Framework for DRR (2015-2025)
• Hyogo Framework for Action (2005-2015)
Next: Implementation (GPDRR, RPDRRs)
IPCC Reports GAR Reports
2015 Provides Unprecedented Opportunities for Strategic Positioning of
Industry’s Engagement in International DRR, Climate Change
and SDG Processes!
UNISDR—Third World Conference on DRR—Adopted Sendai Framework for
DRR 2015-2030 (March 2015, Sendai, Japan)
Third International Conference on Financing Development—(July 2015, Addis
Ababa, Ethiopia)
UN Summit on SDGs—Adoption of Post 2015 Development Goals (Sept.
2015, NYC, U.S.)
UNFCCC COP 21—COP Climate Change Framework Negotiations (Nov/Dec
2015, Paris, France)
4
Progress, Trends, Gaps in Managing EE & Climate Risks
Much to do to address underlying causes of risk!
Risk Financing and Risk TransferRisk Assessment
Hazard databases and metadata
Forecasting and projections
Loss and damage databases
Exposure and vulnerability
Statistical and forward-looking approaches
PREPAREDNESS: Early Warning Systems emergency planning
PREVENTION and MITIGATION: Sector planning (e.g. zoning, infrastructure retrofitting, building codes, agriculture diversification…)
Gov. investments, trust funds (ex ante, post disaster)
CAT Bonds, insurance and ART
Risk Reduction
Information and knowledge sharingEducation and training
Governance and Institutional Framework (Policy, Regulatory, Institutional Roles & Mandates)
(multi-sector, multi-level, multi-hazard)
3
1
54
2
6Source: WMO DRR Program
Emergence of Parametric InsuranceLong-term sustainability, institutionalization and scale
remain to be addressed!
Caribbean and Pacific: Development of Regional Catastrophe Risk
Insurance Facilities are being linked to socio economic groupings activities –
For Risk Pooling and Diversification (CCRIF with CARICOM and PCRAFI
with SOPAC)
Asia: China, India and Mongolia (e.g., agriculture and livestock risk),
Philippines (e.g., typhoons, earthquakes and early recovery)
Africa: First catastrophe insurance pool of African Risk Capacity (ARC- AU),
and Agricultural Risk in Ethiopia and Malawi (drought)
South East Europe: Earthquakes, floods and droughts
International Development Agencies backing global entities for development of parametric insurance solutions in developing nations (Agriculture and food security, health)
6
Selected International and Regional Organisations
Engaged in Insurance in relation to DRR and CRMDifferent priorities, processes, focal points, activities, coordination processes
Organisations/ FPs Policy Regulatory Financing Strategies & Standards
Implementation Risk Modelling Cost/benefit
IMF X X X X
World Bank Group (including IFC)
GIIF
X X X X Catalyst for national (Malawi) and regional risk financing (CCRIF, PCRAFI, SEE)
• UR Forum• CAPRA (Central America),
Pacific, Caribbean• GFDRR Risk Lab• With UNISDR, WHO, ILO
OECD X X X Global reportsNational case by case
Risk Governance
WEF X X X Global Risk report
Internationalassociations and private sector groupings
X X X e.g., FSB, IIS, ClimateWise, MCII
UN X X X X UNISDR, UNFCCC, WFP, ILO, IFAD, UNEP-FI
Depending on the organisation
Bi-lateral donors X X DFID X
Regional Socio-economic Groupings
X X X X e.g., EU, ASEAN, APEC, AU, SOPAC, CAICOM
Regional Development Banks
X X X X e.g., ADB
NGOs, Foundations X CARE, Gates Foundation
X
Background: Latest international developments and trends:
Policy, Regulatory, Financing, Management of EE + CR
R&D in Science of EE + CR, Data and Operational Services
Reflections: Challenges and opportunities for the insurance industry
in EE + CR
Strategic positioning and planning of GA’s research and advocacy in EE +
CR
Discussion and feedback
AGENDA
8
Pacific
Decadal
Oscillation
Northern
Atlantic
Oscillation
IPCC AssessmentsUNFCCC
negotiations
Scientific R&D on climate and its impacts are underway through
internationally coordinated research programmes (e.g., WWRP, WCRP, ICSU-
IRDR, GFCS) Globally coordinated climate research and operational networks provide the
opportunity to promote and facilitate R&D themes relevant to the industry!
Regional and national
operational services
Global Framework for
Climate Services
Source: WMO DRR Program
Climate forecasts and scenarios present opportunities for improving forward
looking CAT and climate risk analysis!
Progress with Extreme Events and Climate Risk Modelling
Coordinated network of climate centres operated by member states to
operationalize climate information services!
Global Framework for Climate Services
191 Countries
Source: WMO DRR Program
Data policies need to be addressed at the highest political level!
Open data policy: key hurdles,
Data is critical for national security
Data is commercial but highly priced
Not available at all or need to be rescued (digitized)
Not shared (institutional turfs and silos)
Hazard data: International data policies facilitated by UN
Resolution 40 “Meteorological and Related Data…” WMO 1995
Resolution 25 “Hydrological Data and Products” WMO 1999
GFCS is tackling hazard and climate data accessibility policies—since 2012
Loss and damage: UNISDR and UNFCCC are promoting data policies and standards for loss and damage data
Data quality standardization and national data platforms: more coordinated approach but takes time
Munich Re, Swiss Re, CRED, La Red, EC-JRC, ICSU/IRDR, UNISDR, UNDP, WMO, UNFCCC Loss and damage,
ISO
13
Background: Latest international developments and trends:
Policy, Regulatory, Financing, Management of EE + CR
R&D in Science of EE + CR, Data and Operational Services
Reflections: Challenges and opportunities for the insurance industry
in EE + CR
Strategic positioning and planning of GA’s research and advocacy in EE +
CR
Discussion and feedback
AGENDA
14
Multi-sector & multi-stakeholder issue
• Sectoral silos, cultural differences and receptivity
• Challenges with multi-sectoral cooperation and alignment (public, private, science, etc.)
• Scaling up and institutionalization of various initiatives and activities (e.g., IGOs, NGOs, public, private, IFIs)
R&D: forward-looking risk-based decision-making
• Need for costs/benefits of risk reduction and transfer
• Data policies and availabilities: (hazard, assets and exposures)
• Forward -looking hazard/Risk modelling R&D – Role of science
• Development approaches• Technical capacities and access to latest
research and technical developments
Challenges for the Insurance Industry Related to Extreme Events
and Climate Risk
Changing patterns of Extreme Events and Climate Risk
• Economic risks of EE & CR on the rise!
• Past not a trustworthy indicator of future!
• Basic Hazard/Asset/Exposure information!
• EE + CR impacts different societies differently (development challenge!).
• Need for forward looking quantification of risks
• Quantification of risk and correlations of risks globally not well understood
Gaps in insurance demand
• High EE + CR risk levels in many countries
• basic hazard/risk information not readily accessible!
• Governments remain reactive, (inadequate policies, legislation and investments in prevention)
• Lack of understanding of insurance
• Lack of incentives (subsidies, post disaster relief and humanitarian funds)
• Regulatory hurdles
• Cultural hurdlesRegulatory challenges
Thoughts on Potential Contributions of Insurance Industry to Improve Societal Resilience to EE & CR
Influence policies, strategies and investment approaches in DRR, CRM
Opportunities for data exchange, data policies and national data platforms
Share knowledge:
Cost/benefit analysis of preventive measures
Know-how, experiences, lessons learned and best practices on topics such as:
• Preventive and preparedness measures for reducing impacts of EE and CR,
• Multi-peril resilient building structures,
• Building codes and related regulatory & legal frameworks
Facilitate penetration of DRR and climate adaptation strategies in economic sectors (through clients)
Share risk modelling tools and capacities
Strategies, products and market development with the view to sustainability and institutionalization
Motivate high-priority research topics and reports
With internationally coordinated science and socio-economic research programs
16
Mechanisms for Systematic Industry Engagement to Help Build
Resilience and Pave the Way for Penetration of the Insurance
Engagement in International Framework Agreements and Processes (UNISDR, UNFCCC, SDGs)
Promoting costs/benefits of preventive strategies
Promote role and benefits of insurance as integral part of sustainable DRR and CR management
Share expertise and knowhow in prevention & sustainable insurance programs
Promote open data policies, standards and development of hazard, loss and damage data platforms
Influence policy, regulations, investments, strategies, standards (global, regional, national)
Engagement with Organisations involved in Insurance in relation to DRR and CRM
Gain insights on international interventions in insurance and national and regional developments
Engage with guiding sustainable and viable insurance concepts and programs
Leveraging opportunities and promoting role and benefits insurance as integral part of sustainable DRR/CA strategies
Influence policies, regulations, investments, strategies, standards
Targeted Partnership for Development of Sustainable Solutions for Insurance
Opportunities for engagement from early stage, building trust and meaningful cooperation
Cost/benefit analysis and risk modeling support
Sharing experiences, practices and lessons learned
Educate on role, benefits and requirements insurance/reinsurance
Innovation, institutionalization and sustainability: Policies, regulations, products, clients, markets penetration
Engagement with Coordinated EE + Climate Research Programmes, Operational Networks
• Engage with coordinated global network of climate and EE research and operational services
• Motivate/promote high-priority research activities and related investments
• Promote/scale up public-private-scientific cooperation
• Commission synthesis reports and studies
Background: Latest international developments and trends:
Policy, Regulatory, Financing, Management of EE + CR
R&D in Science of EE + CR, Data and Operational Services
Reflections: Challenges and opportunities for the insurance industry
in EE + CR
Strategic positioning and planning of GA’s research and advocacy in EE +
CR
Discussion and feedback
AGENDA
18
“Insurance is a vital tool in the development and sustainability of both
emerging and developed economies.
It promotes stability in the global economy for individuals, institutions and
governments by taking on risk and dispersing them around the world through
the global reinsurance markets.
In the face of increasing economic costs caused by climate-related disasters,
it is vital that the full potential of insurance and reinsurance is harnessed
effectively”
Shuzo Sumi, Chairman of Tokio Marine and Co-Chair of Climate Risk and Extreme Events Working Group (2014)
19
Building Blocks for Development of GA’s Strategic Priorities
and Systematic Implementation Plan in EE + CR
1. Consultation with GA Members
Understand priorities, challenges, perceptions, receptivity to engage,
research capacities, gaps and interests in EE + CR
5. Regulatory concerns & developments
Overlap with EE + CR?
2. Opportunities through UN Framework Agreements,
strategies, implementation processes, institutions,
initiatives(DRR, CC, SDG)
Policy, regulatory, financing, management, risk modelling and
data-related issues
EE + CR Strategic Priorities and
Implementation Planning
3. Scientific and technological developments in EE + CR
Progress, trends, directions, uncertainties
4. Potential Strategic Partnerships & Alliances
in EE + CR
e.g., World Bank, UNISDR and other UN agencies, OECD,
international scientific networks
Leveraging Internal and External Meetings in 2015
4/15 5/15 7/156/15 9/15 12/158/15 10/15 11/153/15
WCDRR III - Sendai
FFSA COP 21 Preparations- Paris
GA WG EE &CR -Paris
GA General Assembly -Singapore
SCOR Int’l Scientific Conf. in CR (with GA and Toulouse School of Econ)
AXA Seminar on CR - TBD
US NAS Workshop Role of Insurance in Resilience -DC
UN Summit SDGs -NYC
UNFCCC COP 21 -Paris
7th FFSA Annual Meeting- TBD
GA Meetings provide the opportunity to: • Finalize TOR of GA WG on EE and CR• Brief WG on EE + CR and the members on
developments in EE + CR• Consult on approaches and engage CEOs
and their organisations with development of strategic priorities and implementation planning
• Map relevance of DRR, CC, SDG framework agreements and processes for development of GA’s EE + CR strategic priorities and implementation planning
Members’, associations’ and other relevant meetings: • Define and identify examples demonstrating
role and benefits of insurance in resilience • Engage and discuss with strategic partners
on policy, regulatory, strategic, management, financial, scientific directions and trends in EE + CR
• Thematic priorities, latest developments, practices, etc.
WB-AXA-SWISS RE Indexed Ins -Paris
UN Financing Develop’t –Addis Ababa
Background: Latest international developments and trends:
Policy, Regulatory, Financing, Management of EE + CR
R&D in Science of EE + CR, Data and Operational Services
Reflections: Challenges and opportunities for the insurance industry
in EE + CR
Strategic positioning and planning of GA’s research and advocacy in EE + CR
Overall Approach to GA’s EE + CR Strategic and Implementation Planning
First year goals: Three tier approach
Next Steps: timeline and milestones
22
Discussion and Feedback
Additional Supporting Slides
©
World
Meteor
ologica
l
Top 10 Costliest Events (1980–2013)
Source: Munich Re, NatCatSERVICE, 2014
Year Event Affected Areas Overall losses(US$ billion)*
Insured losses(US$ billion)*
2005 Hurricane Katrina and Strom Surge
USA: MS, AL, FL 125 62.2
2011 Earthquake –Tsunami
Japan: several prefectures 210 40
2012 Hurricane Sandy Bahamas, Cuba, DR, Haiti, Jamaica, PR, USA, Canada
68.5 29.5
2008 Hurricane Ike USA, Cuba, Haiti, DR, T&C, Bahamas 38 18.5
1992 Hurricane Andrew USA: FL, LA; and Bahamas 26.5 17
2011 Floods Thailand 43 16
1994 Earthquake USA: CA 44 15.3
2011 Earthquake New Zealand 20 14.6
2004 Hurricane Ivan and Storm surge
USA, Caribbean, Venezuela, Mexico, Colombia
23 13.8
2005 Hurricane Wilma Bahamas, Cuba, Haiti, Jamaica, Mexico, USA
22 12.5
* Original Values
Intergovernmental Panel on Climate Change (IPCC)
Established by WMO and UNEP
As a mechanism to engage global scientific community and assess scientific consensus, based on peer review process
IPCC process:
ASEAN, CAREC, SASEC, APEC (with Pacific)
Working Groups I: Physical scientific aspects of the Earth’s climate system and climate change
Working Group II: Assesses vulnerability of the socio-economic and natural systems to climate change, - and + impacts and adaptation options
Working Group III: Assess options for mitigation through limiting or preventing C emissions
TFI, TG
Issues Three-part Assessment Reports with a summary for policymakers every ~ 5-6 years
5th Assessment Report—WG I report was issued in 2013
On request of UNISDR, issued The Special Report on Extremes…
26
Nu
mb
er
of
co
un
trie
s t
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ive
da
ta f
or
the
sp
ec
ifie
d h
aza
rd
0
20
40
60
80
100
120
140
Strong w
inds
Thunder
storm
or l
ight
ning
Dro
ught
Hea
t wav
e
Flash
floo
d
Riv
er fl
ooding
Hai
lsto
rm
Den
se fo
g
Cold
wav
e
Hea
vy s
now
Smoke
, Dust
or H
aze
Haz
ards
to a
viat
ion
Earth
quakes
Coas
tal f
loodin
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Tropic
al c
yclo
ne
Forest
or w
ildla
nd fire
Lands
lide o
r m
udslid
e
Freez
ing
rain
Storm
surg
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Tornad
o
Wate
rborn
e haz
ards
Airb
orne
subst
ances
Mar
ine h
azar
ds
Sandst
orm
Ava
lanch
e
Tsuna
mi
Volcan
ic e
vents
Des
ert l
ocust
sw
arm
• Unable to maintain the
observing networks
• Not maintaining hazard data
systematically
• Need data rescue & Data
Management Systems
• Need Standards for:
• Monitoring
• Hazard database and
metadata
• Analysis tools Statistical
analysis Climate
modelling• Human expertise
Source: 2006 WMO Country-level DRR survey
http://www.wmo.int/pages/prog/drr/natRegCap_en.html
And tsunamis…
Following the 2004 Boxing Day Tsunami in Indian Ocean:
Major developments in monitoring, detecting, modelling and issuing tsunami warnings
Efforts are coordinated by UNECO-IOC through regional and global intergovernmental coordination groups
Tsunami information is collected and processed at three designated centers (Alaska, Honolulu, Japan) –More centers are being negotiated (Porto Rico for Atlantic, France for Mediterranean)
RMS CAT modelling to quantify tsunami risk around the world