|
|
Greg Case, chief executive of Aon, said the pandemic has caused a “great awakening” among chief executives to the “next generation of long-tail risks”. Business leaders are now asking what the next big event will be and risks like climate change, cyber and pandemic, which were once on the “horizon”, are now on the “front porch”, he said.
“We are observing a fundamental re-ordering of client priorities on a global scale,” Mr Case said. Instead of trying to adjust to the “new normal”, society and businesses should “reframe their perspective” to focus on building the “new better”, Mr Case said. There is an opportunity to press forward and “accelerate innovation”, he added at the two-day event.
According to Lauren Sorkin, executive director at the Resilient Cities Network, the insurance industry’s “risk-informed capital” could be mobilised to build resilience. She noted that the insurance industry has good data on risk, technical expertise and large balance sheets that can be leveraged by cities looking to build more resilient infrastructure.
Speaking at the event, Ms Sorkin said there are opportunities to incentivise public-private partnerships and investment in more resilient infrastructure. In particular, insurers could bring their risk engineering to emerging markets, where about a third of infrastructure has yet to be built, she said.
Ms Sorkin defined resilience as the ability of society and business to survive and adapt to acute shocks like the pandemic or climate change. “Covid-19 is the alarm button that we just can’t snooze,” she said.
Emma Howard Boyd, chair of the UK’s Environment Agency, also believes that the insurance industry can use its balance sheet alongside government funds to invest in resilience measures.
Rather than just “bail out” businesses and victims of disasters, insurers should use their investments to build resilience to climate change and take into account net-zero commitments, she said. For example, the Environment Agency is already working on a number of public-private partnership financial solution projects, including one initiative with FloodRe that could be scaled up, she said.
The insurance industry has the “appetite” to invest in more resilient infrastructure, according to Lloyd’s chief executive officer John Neal. In fact, the insurance industry sees climate change as the “biggest investment opportunity of a lifetime”, he said.
According to Mr Neal, there could be as much as $13trn ready to invest in more resilient infrastructure, yet the required changes in policy, regulation and capability to make those investments are not happening fast enough, he said.
“The money is there but we need to cut through the bureaucracy,” Mr Neal said. In particular, insurance regulation, which continues to be influenced by bank supervision, needs to be adapted to better reflect the business of insurance, Mr Neal told the webinar. “Sharp work” is needed around policy and regulation to put money to work on resilience, he added.
Several speakers at the event, including Mr Case, believe building resilience to future events will require public-private partnerships, including between the insurance industry and governments. “The greatest opportunity is to join together and address these challenges,” Mr Case said.
Opening the event, Lloyd’s chairman Bruce Carnegie-Brown said insurance has an important role in helping countries and businesses recover from disasters. However, some risks are too big for the industry to handle alone, he pointed out.
The insurance industry has about $2trn available to pay claims, yet the cost of Covid-19 in terms of government support is about $14trn, said Mr Carnegie-Brown. The pandemic is likely to cost the insurance industry $100bn, of which Lloyd’s expects to pay $5bn.
Mr Carnegie-Brown said governments should be “receptive” to public-private partnerships to prepare for future ‘black swan’ events, such as a pandemic or cyber incident. He suggested following the model of Pool Re, where the insurance industry has built a fund of $6.5bn to pay terrorism claims that can be topped up by a government loan should losses exceed this amount.
David Howden, chief executive of broker Howden Group, said the insurance industry needs to listen to the needs of its customers, including cities and municipalities, and do more to help prevent and mitigate risk. He referred to a catastrophe bond issued this week for the Danish Red Cross, which provides contingency funding in the event of a major volcanic eruption.