Posted on 16 Sep 2010
The Willis Research Network (WRN), part of Willis Group Holdings, and the world's largest collaboration between academia, industry and government, is marshaling the expertise of its international membership base to assess the physical, strategic, operational, and financial risks posed by extreme events. At a press briefing in Monte Carlo on Sunday, the Network's Chairman explained the WRN's aim of placing the insurance industry at the epicentre of industrial and social sustainability efforts.
Speaking at the event which coincides with this week's Monte Carlo Reinsurance Rendezvous, Rowan Douglas, Chairman of the WRN and CEO of Global Analytics, said: "From corporate financial stress and bankruptcy on Wall Street, to poverty and mortality in developing countries, it is increasingly clear each day that our industry's and our society's sustainability is inextricably linked to our ability to avoid and manage extremes."
The first six months of 2010 saw insured catastrophe losses exceed $20 billion--equivalent to the total losses incurred during the whole of 2009. Standard & Poor's, the rating agency, estimates that more than half of the reinsurance sector's annual catastrophe budget had already been eroded before the onset of the U.S. hurricane season. Munich Re puts insured losses at $22 billion in the wake of the Chilean earthquake, the U.S. winter storms, Windstorm Xynthia in Europe, hail in and around Melbourne, and widespread flooding in several territories. According to S&P, this represents the highest level of first-half losses seen during the last decade, and more than double the average.
At the press briefing, the WRN highlighted the following interesting statistics:
-- In the past three decades, direct global economic losses for all types of natural catastrophes have averaged US$90 billion per year, with 78% of those natural catastrophes being weather related.
-- 85% of deaths associated with all natural catastrophes over that timescale have occurred in developing countries (Munich Re, 2010).
-- Commonly cited risk drivers include threats imposed by variability in today's climate, development pathways increasing human vulnerability including population growth and urban concentration, natural resource depletion, low quality housing, and additional potentially devastating, uncertain risks from climate change that may worsen weather-related catastrophes.
"The obligations imposed by regulators to ensure our industry has sufficient capital to withstand the maximum probable losses expected once every 200 years are only set to toughen with the introduction of laws like Solvency II, the creation of an Office of National Insurance within the U.S. Treasury, and a reshuffling of financial regulation in Britain. No other branch of the finance industry has to manage to such extreme thresholds of sustainability as part of its everyday operations as ours, so it makes perfect sense to position insurers at the forefront of global sustainability," said Douglas.
Increasingly, the methods and principles used to evaluate and calculate the risks of natural catastrophes are being employed to understand our exposure to man-made disasters, the meltdown of financial markets, and other systemic risks. All these analyses are now being conducted in an increasingly unified "modeled world", with the benefits moving far beyond the insurance industry and people in rich nations, to helping governments, aid agencies, and local communities advance sustainable development and alleviate poverty in developing nations.
"Insurance is transitioning from the unfashionable branch of the finance sector, to the ultimate 'community product,' enabling populations to share the costs of extreme events at local and global scales," said Douglas. "This is locating insurance at the very heart of the search for sustainable futures."