Protection gap: helping to plug the flood risk gap

The re/insurance industry has the power to effectively mitigate global flood risk—if it works closely with governments and other key stakeholders.

This was one of the main takeaways from a panel discussion “Plugging the flood gap: risks and opportunities for re/insurers”. The discussion took place on Intelligent Insurer’s Re/insurance Lounge, an online platform where interviews and panel discussions are available on demand.

The event featured Maryam Golnaraghi, director, climate change and emerging environmental topics, The Geneva Association; Steve Bowen, director & meteorologist, head of catastrophe insight, impact forecasting, Aon; Matt Junge, head property solutions US & Canada, Swiss Re; Avi Baruch, chief operating officer, Previsico; Nigel Brook, partner, Clyde & Co; and David McNeil, associate director, sustainable finance, Fitch Ratings.

“The protection gap for the developed world is enormous but for the developing world it is cavernous,” said Brook.

He said that narrowing the protection gap requires a great deal of collaboration with other re/insurers. “In the emerging market it is exceedingly difficult to collect data in a systematic way,” he said.

“The theme is public-private partnerships and when the right information is shared with all stakeholders (including government, banks, and insurers) there can be a great deal of innovation,” he explained.

Golnaraghi believes the insurance industry can play a crucial role towards filling the protection gap through collaboration with various stakeholders.

“We need to know what is really holding up the show when it comes to filling the protection gap in a world where floods are the greatest climatic risk,” she said.

“The protection gap is critical, but when it comes to developed and emerging economies priorities differ.” She believes that there are different obligations for developed and emerging economies as well as vast differences in the availability of data related to risk.

Bowen at Aon said that one of the biggest challenges the industry faces is how effectively to communicate the level of risk. “People don’t realise the risks they face, and that is just in developed countries,” he said.

Golnaraghi added that in more mature economies there has been a great deal of progress and many countries are taking an interconnected approach. “These economies are also realising that a strictly government-based solution does not work and with the prohibitive cost associated with floods there must be more engagement with the private sector,” she said.

Data is vital

She emphasised the vital role of reliable data to gain a clear understanding of risk, but added that in developed nations, some institutions hold essential data close to their chests because of its value to the private sector.

Golnaraghi said that finding data on loss and damage in emerging economies is difficult because data cannot be adequately collected and analysed.

“The real value of data is realised only when it is used to make great decisions that will fill the protection gap,” she said.

“Many countries need reform to manage risk and the industry needs to raise the game for everyone through collaboration of governments and the private sector,” she said.

“We need to look at how data translates into decision-relevant information and move from data to meaningful risk information.”

Bowen added that how data is presented for risk mapping is one of the greatest challenges the sector faces worldwide.

“There has to be a continued investment in data because things can change rapidly in a matter of months and if data is not reliable, it creates uncertainty,” he said.

Baruch agreed with the importance of data collection and the need to use it to mitigate risk globally.

“The UK, for example, has had some valuable lessons on the value of sharing data and it’s become apparent that many flood losses are completely avoidable,” he said. “If insurers can help clients with action plans, more can be done,” he added.

McNeil agreed that there needs to be a much higher level of transparency when it comes to the distribution and collaboration of data, particularly because flooding is one of the most dramatic and devastating climate risks, often affecting emerging economies far worse.

“The impact of underinsurance can be devastating, and greater transparency will have a massive advantage for mitigation,” he said.

Junge asserted the importance of communicating risk, which will successfully get more people properly insured for flood, but agreed that the industry needs to convince all stakeholders to be on board.

“Education is key to all,” he said. “Our role is to help the re/insurance industry create better products to suit their clients and our success is helping them to do so.”

To make the world more resilient to floods and create low risk, communication of risk to public and private sectors in different economies is paramount, he added.

The panel discussed some examples that have been carried out in developed economies, including Germany, Canada, and Australia, where insurers not only form a more valuable relationship with their clients but ultimately enhance preventability and mitigation programmes.

“How do we fill the protection gap with sustainable initiatives? We are seeing some good examples from these developed economies who are getting closer.

“But there needs to be an alignment of priorities to create a sustainable vision for the future,” Junge concluded.

To view the full Re/insurance Lounge session click here.