Insurers must drive focus on climate risk to cities says broker

A leading insurance expert attending the COP28 summit in Dubai has said the insurance sector must look to work with public and private investment to better understand the rising climate threats to the world’s major cities.

Viktoria Seifert, director, Disaster Risk Finance & Parametrics, at broker WTW  said the industry had the analytics capabilities to shine a light on what at present has been a neglected area of focus when it comes to climate threats with major urban areas being somewhat overlooked in favour or more rural and coastal regions.

“As an industry, we need to strengthen our efforts to support the mobilisation of resilience capital by private and public investors, as well as delivering the metrics, analytics and guidance on how these can be applied to understand the risks and the exposures,” she explained. “Building on risk analytics and financial projections, the industry is also more than well placed to deliver insights on emerging, crucial risk hotspots, such as cities.”

Seifert continued: “At present, not enough attention is being paid to the concentrated exposure of people and economic assets in cities and there is a lack of understanding, quantification and costing of the localised impact of climate change at city-level and the wider effects on the national economy should cities be affected by climate events.”

Much talk in the opening days of the summit has been the Loss and Damage Fund which was agreed at COP27 last year and had been opened in Dubai with developed nations already announcing contributions .

The fund was set up to support developing economies to manage the losses caused by climate change but Seifert said the fund was one of  number pf solutions that the world’s richest nations had devised and could not be treated in isolation, and insurers had the opportunity to be at the heart of the world’s efforts.

“Parametric solutions to maintain liquidity have a massive role to play in how we approach the challenges we face to recognise, price and finance risk,” she explained “Parametric insurance has the ability to deliver liquidity quickly in order to aid immediate relief or rehabilitation of core infrastructure and services after the event has occurred. While we need to be careful that it is not misunderstood as a sole solution for the longer-term investment needs, the industry can also help minimise and avert future loss and damage through providing the disaster risk analytics underpinning hazard, impact, and insurance cost modelling. These may have a role to play in enabling better preparedness and longer term resilience investment.”

On the hopes for COP28 she added: “What’s often emphasized is that the Loss and Damage Fund is intended to be part of a ‘mosaic of solutions’ to address loss and damage – integrated with other types of initiatives. Last year, the G7 and the V20 Group launched the Global Shield against Climate Risks to support the scaling up of pre-arranged and trigger-based finance, including parametric insurance and premium finance.

“If we’re speaking about a mosaic of solutions, any new funding arrangement dealing with the implications and impacts of disaster risk – like the Loss and Damage Fund – should do both by bolstering existing initiatives such as the Shield as well as addressing gaps that continue to persist, whilst making sure to avoid duplicating efforts and investing efficiently. This also means complementing the objectives and strategies of other relevant institutions dealing with risk and finance, such as the IMF.”

“Ongoing negotiations will need to make further progress in terms of what will be funded and how the fund will be accessed, also accounting for the localised character of disaster impacts and the crucial role of national and local authorities in addressing disaster impacts,” she continued.

On WTW’s attendance at the summit Seifert explained: “We are at COP28 to support our partners and clients which include regional disaster risk pools, humanitarian organisations, and conservation organisations and discuss issues around risk financing and what risk financing can do to address economic, people- and nature-related disaster impacts, and to increase the operational, institutional and financial shock resilience of public and private institutions.

“Topics will include sovereign and sub-sovereign risk finance, debt-resilience, humanitarian crisis finance and the benefits that nature-based solutions can deliver.”