Public-private partnerships needed to close climate protection gap, says Aon

Collaboration between the public and private sectors is essential to close the rising protection gap and build resilience against catastrophes, noted a panel of industry leaders at Aon's event in London.

Speaking at the “Collaborating to close the protection gap” conference, Aon CEO Greg Case noted that global finance and insurance industry needs to work more effectively with governments, humanitarian and non-governmental organisations amid rising losses from natural catastrophes. The goal is to close the gap between the insured and uninsured to protect global communities and build scalable solutions through shared experiences.

“The protection gap places an immense financial strain on governments, businesses, communities and individuals. Yet, financial impact is only one aspect of the toll these disasters inflict," said Case. "We also must consider the profoundly troubling humanitarian and social impact – lives lost, communities compromised and businesses, as well as individual livelihoods, disrupted.

“Considering the magnitude of the challenge, a solution is beyond the ability of any individual, organization or even sector. We have absolute conviction, though, that, collectively, we can make a difference. Our hope is that we will forge a shared commitment to new ways of collaborating that will allow us to build resilience at scale,” he added.

According to the re/insurer's 2019 annual report, natural catastrophes have resulted in global economic losses of $2.98 trillion over the last decade, of which only $845 billion has been insured, creating a protection gap of 72 percent.

Aon's research also shows that a significant protection gap persists in developing and emerging countries, particularly in Asia - where just 12 percent of economic losses – $151 billion out of $1.23 trillion – were covered by insurance in the last decade. In Latin America and Africa insurance take-up rates were in the low single-digits, meaning that virtually all losses were uninsured and local populations were entirely dependent on federal or international financial support for recovery.

Highlighting the importance of the UK insurance industry in tackling climate change, CBI vice president Lord Bilimoria said: “The openness and maturity of the London market, supported by its in-depth knowledge and skills, gives us the capacity and experience to assess, underwrite and mitigate some of the world’s greatest emerging risks.

“As set out in UN Principles for Sustainable Insurance, this sector has a crucial dual role to play, helping to drive sustainable action both through the risks you cover and investments you make."

Bilimoria added: “To tackle the climate emergency in the time left, we need to go faster and further than ever before. And business can’t do it alone. It must be done in partnership with government.

“In insurance, our members have three main asks. First, smarter regulation and effective incentives to support the growth of green and sustainable finance. Second, greater clarity on data and climate-related disclosures, and a long-term approach to developing a taxonomy to classify sustainable activities. And, third, a clear definition of an organisation’s fiduciary duties in relation to climate-related risk."

Graham Stuart, the Minister for Investment, commented: “Today’s conference is a great example of how both the private and public sector can work together to benefit wider society. Through working to reduce the protection gap, we can ensure a better quality of life for everyone and tackle the effects of climate change.

“The UK’s insurance industry, is one of the world’s leading markets, generating £93 billion worth of premium income, of which £43 billion is related to exports. It’s great to see the industry setting an example for others to follow to help create a better world for us all to live in.”

The event was hosted in partnership with the City of London, The British Red Cross, ClimateWise, Insurance Development Forum, AXA XL, Pool Re, MS Amlin and Renaissance Re.