Speaking at the World Economic Forum in London on Tuesday, John Drzik, CEO of the Oliver Wyman Group, argued that a confluence of rising natural catastrophe risk linked to climate change, and growing debt levels resulting from the financial crisis, are weakening the ability of governments to respond to catastrophic events.
In order to cope, he said that governments should seek to transfer more of this catastrophe risk into the capital markets. Drzik said that governments have—over time—taken on an increasing burden of post-event losses, an approach that is simply unsustainable in the present economic climate. “Governments are expected to respond following such events, but as the financial crisis persists and deepens, they will find themselves increasingly unable to do so”. Instead they should be turning to a re/insurance sector that can provide further meaningful capacity to any government back-stop.
Axel Lehmann, chief risk officer at Zurich Insurance Group concurred, arguing that the private sector—and the re/insurance industry in particular—can add significant value to such discussions, particularly regarding the assessment of risk, its severity, frequency and mitigation.
In a brief interview with Bermuda Re following the event, David Cole, group chief risk officer at Swiss Re, agreed that the industry could do more to pro-actively engage with governments in order to provide coverage to deal with catastrophe risks. “The key will be creating an environment of mutual trust in which we all know that we have the same common goals in mind—creating sustainable economic growth, protecting the world against environmental damage and creating a positive outcome and level playing field in providing solutions to these risks”, said Cole.
Drzik and Lehmann also touched upon efforts to reduce exposure to catastrophe risk, with Lehmann arguing that a global agenda to deal with risks such as climate change and the ongoing financial crisis was needed: “as global risks do not simply stop at borders”. He spoke of the need for countries to strengthen their risk management capabilities in the face of the rising threat, with lessons drawn from the private sector. The idea of country chief risk officers was also mooted by the panel, with the intention being that such individuals would be tasked with coordinating national and international responses to global risk.
And it seems that many of the risks associated with climate change are only set to worsen. As Cole indicated, climate change and severe weather events have risen up the agenda of the Global Risks report in recent years, with the financial crisis further exacerbating the problem. He said that the convergence of financial and environmental threats made the case all the more pressing for global action. The panel concluded with a call to arms to resolve a host of global threats, with the World Economic Forum set to submit its findings to international governments.
Details of the full report can be found at: http://reports.weforum.org/global-risks-2013/