As a part of Climate Week in New York City, Swiss Re and The Climate Group hosted the panel Risk and Resiliency: Risk Transfer & Adaptation in Emerging Economies. Swiss Re is one of the world’s largest and most diversified reinsurers. According to Swiss Re, the economic effects of current climate impacts can amount to between 2-12% of GDP annually. These impacts threaten to undermine national budgets of vulnerable countries for years to come.
One way to finance government response to these climate-related impacts is through the deployment of what Swiss Re calls risk transfer solutions. An example of a risk transfer solution is The Caribbean Catastrophe Risk Insurance Facility (CCRIF). The CCRIF is multi-country risk pool supported by Swiss Re that provides 16 Caribbean governments with rapid access to financing in the event of hurricanes and earthquakes. CCRIF payouts are estimated through a model in which hazard levels such as wind speeds are used to estimate losses. This is referred to as a parametric method of estimating insurance claims. Since the payout does not depend on a claims process, payouts can be made within weeks. This was the case when the Government of Anguilla received US$4,282,733 following the passage of Tropical Cyclone Earl, which passed close to the island on August 30, 2010. The value represents almost 20 times the annual premium of US$225,000 that the Government of Anguilla pays for hurricane coverage. An approximate payout amount was estimated within 24 hours after the hurricane had passed.
Here in the United States, Swiss Re and the State of Alabama reached a deal in July for parametric insurance coverage for catastrophic events. The U.S is Swiss Re’s largest market, and the company is pursuing similar transactions within the US market.
In conjunction with the Climate Week event, Swiss Re released a new publication called Weathering Climate Change: Insurance Solutions for More Resilient Communities. As experts in risk management, the report holds that insurers and reinsurers can contribute to climate change adaptation by working “with government to design and deploy new and innovative risk transfer solutions that can play their part in helping the most vulnerable societies cope with large natural disasters, especially in the developing world.”
Matthias Weber, Swiss Re’s Division Head Property & Specialty stated, “insurance is an effective method to finance the costs of climate-related disasters. It is most effective when viewed as an integral part of a much broader climate adaptation strategy.”