David Bresch and Andreas Spiegel
- 05 June 2012
An estimated 3.4 billion people are threatened by storms, floods, drought and other natural hazards, most of them in the developing world. Climate change could put at risk many more. Innovative insurance solutions can strengthen climate resilience and protect communities against the rising costs of climate change.
Economic losses from climate-related disasters are already substantial, and they are on the rise. Insured losses alone have jumped from an annual US$5 billion to 27 billion over the last 40 years. Without further investments in adaptation, climate risks could cost some countries up to 19% of annual GDP by 2030 and set back years of development gains. While cost-effective measures could avert a large part of this damage, funds earmarked for adaptation fall far short of what is actually needed globally. The United Nations estimates that by 2030 the world should be spending an additional US$36-135 billion each year to address the effects of climate change.
Innovative forms of risk transfer can boost adaptation financing and make societies more climate-resilient by protecting them against the costs of the most severe weather impacts. Decision makers must consider the facts when devising a risk management strategy, and insurance plays a key role in making it both affordable and effective.
Efficient allocation of financial resources is essential to manage the growing threats of climate change, and insurance is a powerful tool in achieving this. It protects communities against catastrophic losses and, by putting a price tag on risks, provides a strong incentive to invest in adaptation measures that promise to yield net economic rewards.
With low administrative costs and fast payouts, index insurance or parametric covers offer an attractive alternative to traditional insurance policies. Their benefits could be particularly far-reaching in developing countries where financial resources are scarce and the effects of natural disasters fierce.
Studies on the economics of climate adaptation in different regions exemplify how climate adaptation works in action. Emerging countries can reduce local climate risks by combining prevention and risk transfer measures. Swiss Re's solutions show how climate risks can be transferred away from public budgets to the commercial insurance market, thus pre-financing disaster recovery efforts.
During our live Twitter Q&A on June 5, 2012 with Swiss Re's, Dr. David Bresch, Head Sustainability and Political Risk Management and Andreas Spiegel, Senior Climate Change Advisor, David said Swiss Re are working 'closely' with government and industry to keep climate adaptation on the global agenda. Here are some of the highlights from that session.