The climate emergency has placed the world in an unprecedented era of uncertainty and fragility, but people living in the developing world are the worst affected by the protection gap, Ekhosuehi Iyahen (pictured, centre), secretary general of the Insurance Development Forum (IDF), told the Bermuda Climate Summit on 25 May.
Iyahen was on the panel titled Building resiliency in the face of climate change, which was moderated by John Huff, president and CEO of the Association of Bermuda Insurers and Reinsurers. The other panellists were: Samantha Medlock, senior counsel on the Select Committee on the Climate Crisis of the US House of Representatives; and Steven Seitz, director of the Federal Insurance Office at the US Department of the Treasury.
Huff described the IDF as the “epitome” of a public-private partnership.
The IDF is led by the insurance industry, but in partnership with the World Bank and the United Nations. It was announced at COP21 in Paris, in December 2015, and was officially launched in April 2016.
It aims to optimise and extend the use of insurance and its related risk management capabilities to build greater resilience and protection for people, communities, businesses, and public institutions that are vulnerable to climate, disaster and wider risks and associated economic shocks.
“We have as our objective to expand the use of insurance and related risk management capabilities to drive resilience, and in many developing countries we have a situation where only 1-4% of losses are actually covered by insurance,” Iyahen said. “So there's a real problem there in terms of how we close the protection gap.”
“In addition to that, I think if we step back a bit and we look at where we are as a global community, some have described it as an unprecedented era of uncertainty and fragility. That's the confluence of a number of issues which are driving real structural changes in how our society is structured. There is a need for greater awareness in terms of the risks that we face as global community, but also the need for deepening risk management capabilities. And the insurance industry is essential in terms of driving that effort.”
The IDF works as a bridge in conversations between the public and private sector, she said, on questions such as: “How can we progress in terms of this agenda? How can we begin to close the protection gap? How can we begin to support governments in thinking about adaptation? How do you drive financing into adaptation efforts? How do you have those difficult conversations around adaptation and the trade-offs that will inevitably have to be made?”
She added: “And so, for us, the contribution of the insurance industry is ‘yes’, in terms of the underwriting capacity and ‘yes’, as investors, but it's also about helping to support the development of the requisite architecture that many countries need if they are to become more resilient in the future. This is a really important agenda for many governments and public institutions, but I think it's also central to the purpose and the future of the re/insurance industry.”
Key to helping the developing world is, she said, improving the availability of policy risk information.
“But it's not just data; it's how you translate that into information that decision makers can actually act upon, that they can use to inform the investments that they need to make, that they can use to inform the communication that they need to have with communities in terms, not only of understanding the risk, but also of acting on it.”
To address this matter, the IDF launched a programme at COP26 with the Vulnerable Twenty (V20). This is a group of finance ministers in the Climate Vulnerable Forum, which is an initiative of economies systemically vulnerable to climate change.
“V20 is a bit of a misnomer, because it's actually a group of the 55 most vulnerable countries in the world where we need to tackle the issue of plugging the risk information gap,” Iyahen said.
This effort is focused on three pillars, she added. The first is the architecture needed to allow for the deployment of that information in a much more systemic way.
The open-source catastrophe modelling platform known as Oasis is helping the IDF to develop that architecture, but also to reconcile it with the public sector needs and demands when it comes to data, she said.
The second pillar is devising the public-private partnership, which itself has two elements.
“We've been working very closely with the V20 as a community, but also the German government to think about the establishment of a fund that will help finance working with those governments so that they can also strengthen their own national risk analytic capabilities,” Iyahen said. “What we're trying to do is not just to hand over information and then disappear, but to enable them to imbibe that information, and also begin to use it to actively inform their decisions. And so for us, the risk modelling piece is a really important one.”
The second element of this is the need to think carefully about the kinds of protection systems that are required to enable the transition to net zero. That requires innovation in order to expand new markets and new opportunities that are central to plugging the protection gap, she said.
The third pillar is the need to communicate better the value of insurance.
“I think perhaps the industry defaults to a comfort zone of not having to explain its value,” she said. “But when you get into a context where insurance is not top of mind, you're forced to articulate it. Discussions at COP26 showed there were lots of questions in terms of the value of insurance, such as, ‘Why have been asked to pay a premium? How does this fit into the broader conversation around climate finance?’
This is a central part of the work that we do as the IDF in the service of contributing towards practical, real solutions for countries and communities, but also how we shape the broader policy conversation in terms of the relevant role that insurance can play.”
The protection gap is not a new conversation, she said, and yet it continues to expand.
“The point is, you need to really interrogate how are we collaborating with partners across public and private civil society, and academia, to really try to address this challenge before us. How can we bring together some big insurance companies with local actors, with the regulator with the ministries of finance, to have those conversations that focus on what is the risk? How are you dealing with this in terms of it being a liability? How then can you actually proactively manage that? And who bears the cost? What's the role of international development finance community in that? What’s the role of the private sector? What’s the role of the regulator? These are difficult conversations, but they are necessary conversations in order to tackle this problem, and that's why partnerships are so essential.”
Bermuda Climate Summit, IDF, Public-Private Partnerships, Protection Gap, Bermuda, Insurance, Reinsurance