Lessons to learn from pre disaster investment: AXA XL Re

“Asia, like the rest of the world, faces the urgent challenge of adapting to and mitigating the impacts of climate change, especially in this era of escalating natural disasters,” says Dan Bryan, head of reinsurance for Asia at AXA XL Re.

A recent collaboration between AXA XL Re and the Cambridge Centre for Risk Studies (CCRS), titled “Optimising Disaster Recovery: The Role of Insurance Capital in Improving Economic Resilience”, offers insight into how pre-disaster investment in resilience can yield positive returns, in terms of financial savings and protection.

One of the most compelling findings from the research is the significant return on investment that can be achieved.

“For every US dollar spent on pre-disaster resilience between 2000 and 2022, an average of $16 was saved in damages,” Bryan said. 

This figure highlights the value of investing in infrastructure and resilience before a disaster strikes, rather than focusing solely on recovery after the event.

“This kind of investment is key to adapting our environment in the face of a changing climate.”

Bryan explained the relevance of the report to the Asian market. “The research seeks to answer a few fundamental questions, such as ‘Does disaster preparedness work?’ and ‘If society invests in pre-disaster resilience, is it financially viable?’,” he said. 

“In Asia, we can see how investment in Japan and Taiwan in terms of building resilience has been of benefit in subsequent natural disasters. The findings from our latest research, which focused on North American hurricane damage, showed that this kind of investment is key to adapting our environment in the face of a changing climate.”

The bigger picture  

AXA XL Re has a long-standing research partnership with CCRS. The initial project took into account some of the largest catastrophes globally, many of which were located in the Asia-Pacific region. 

“In Asia we need to think how best to tackle the protection gap,” Bryan commented.

“When you interrogate the data provided by CCRS, you see that some of the largest disasters occurred in our Asia-Pacific region, and often in areas where communities are the least able to rely on insurance to rebuild,” he added.

“Many of these communities are all too familiar with frequent natural disasters and have developed the means to quickly recover from such catastrophes. However, taking the idea of resilience into those communities may be one of the more effective ways of protecting people in those areas, from the point of view of helping resilience and also in terms of making insurance more affordable, particularly as climate change will impact these risks in the future,” he explained.

Changing the view of risk

For the reinsurance industry, the research offers a clear blueprint for approaching climate risk more strategically. 

“It’s very clear from this work that climate change is impacting the risk,” Bryan stated, adding that reinsurers needed to rethink their approaches to underwriting, pricing and risk management in the face of increasingly severe weather events. 

It is evident that the makeup of clients’ portfolios are changing rapidly as governments and private markets seek to respond to rapid technological advancements, as well as environmental priorities.

“We’re trying to influence clients to understand the impact of climate change on their own portfolios.”

Reinsurers are in a unique position to influence how the wider insurance industry, as well as other stakeholders, approaches disaster risk, he said. 

“With this type of analysis and research, we’re trying to influence clients to understand the impact of climate change on their own portfolios and to ensure that the knowledge of the work that is being undertaken is shared with key partners.

“This is not just about adjusting policies, but fundamentally rethinking how risk is assessed and managed in a world where the frequency and severity of disasters are on the rise,” he concluded.

Dan Bryan is head of reinsurance, Asia at AXA XL Re. He can be contacted at: dan.bryan@axaxl.com 

For more news from SIRC Today, click here.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.