The human and economic impacts of natural disasters could be reduced if governments around the world cooperated more closely with insurers, according to a new report from The Geneva Association.
Launching its report in London this week against a backdrop of floods in Europe and super tornado touchdowns in the US, the insurance think-tank said that the industry’s expertise in risk management and risk pooling can improve society’s resilience to disasters and reduce their subsequent economic impact.
Commenting on the report, Insurers’ Contributions To Disaster Reduction – A Series Of Case Studies, Dr Nikolaus von Bomhard, chairman of the Geneva Association and chairman of Munich Re, said governments are not sufficiently aware of what the insurance industry has to offer, saying: “They should harness our resources more to improve resilience and to reduce the consequences of disasters when they happen.”
Speaking to Reactions on the sidelines of the conference, von Bomhard criticised policymakers’ slow reaction to flooding in Germany in 2002. He said that the country should have been better prepared for this year’s inundation. “Many plans were made after the last big floods but it took way too long to turn into action… I hope they won’t make the same mistakes this time,” he said. “Make a decision and then execute on it.”
Von Bomhard also criticised German politicians for promising flood aid. “People should take care of their own destinies,” he said. German Chancellor Angela Merkel has promised Eu100m ($130m) in emergency aid for flood-hit areas.
Also speaking at the launch, Margareta Wahlström, of the UN Office for Disaster Risk Reduction (UNISDR), agreed that government action sometimes detracts from the value of insurance in the public’s eye. “Governments don’t realise when they make promises about solutions that it takes away incentives,” she said. “And if the government is responsible for reconstructions costs, it goes back to the taxpayer.”
Wahlström said governments should get over their resistance to public-private risk partnerships.
The Geneva Association’s report found that insurance quickly and effectively injects liquidity into catastrophe-affected economies, reducing the burden on governments and freeing up capital for additional recovery efforts.
In the 2011 Tohoku earthquake and tsunami in Japan, around 90% of the $38.5bn of insured losses was paid within three months of the disaster, thanks to the Japanese Earthquake Insurance System. Take-up of the cover grew by 10% after the disaster.
The report said the cost of a risk must be correctly reflected by the price charged for insuring it and that governments can either support or undermine this effective risk signal, by supporting risk based pricing.
Michael Butt, co-chairman of the Geneva Association’s Climate Risks and Insurance Project, and chairman of Axis Capital, said: “Strong local government policy on land use and building codes, coupled with disaster recovery plans, will allow communities to rebuild quickly and sensibly… local government actions in New Jersey and New York in the wake of Sandy are a positive step in the right direction and an example to other jurisdictions.”
The Geneva Report No. 7, Insurers’ Contributions To Disaster Reduction – A Series Of Case Studies is available at www.genevaassociation.org