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Willis Research Network Says Managing Extreme Risks is Key to Sustainability, Financial Security and Poverty Reduction

Source: Willis

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Posted on 10 Jun 2010

The scientific models used by the insurance industry to assess the financial risks of extreme weather events could help governments and aid agencies develop new approaches for sustainable development and poverty alleviation, according to Rowan Douglas, Chairman of the Willis Research Network.

Addressing delegates at the World Bank's inaugural Understanding Risk conference, held June 1-4 in Washington, D.C., Mr. Douglas said that the methods employed by insurers to model extreme risks could be the key to helping the world's most vulnerable communities cope with the social and economic impacts of floods, droughts and other climate-related threats.

"We tend to manage for normality, but it is the extreme events that often matter most," said Mr. Douglas. "Whether it's in our financial institutions, societies or environment, sustainability is achieved by avoiding or managing the impacts of undesirable extremes within tolerable parameters. Therefore, we are proposing a new lens through which we look at the issue of sustainability, one which repositions the fundamental concepts and roles of insurance at the heart of delivering sustainability, financial security and poverty reduction," said Mr. Douglas.

During his closing keynote speech, Mr. Douglas illustrated how the tools, models and techniques used to help insurance companies sustain 1-in-200-year shocks could help deliver sustainability and financial security, and combat poverty in those regions most at risk to extreme weather. The idea of extending insurance concepts of extreme risk modeling and risk sharing across finance, development and other sectors comes at a time when the world's leading development and aid organizations are searching for new solutions to prepare poor nations and emerging economies for future catastrophes.

According to the World Bank's research, it is the poorest of the poor in regions such as Southeast Asia who will be most affected by extreme weather events, including floods,cyclones and drought. India alone could see a 30-40 percent decline in agriculture productivity as a direct result of more extreme weather.

More than 400 international development, re/insurance and technology leaders gathered at the World Bank's headquarters in Washington, D.C. for the event. The meeting reviewed the use of new technologies, including sophisticated climate modeling techniques, innovative insurance solutions and inter-sector collaboration to help countries throughout the world mitigate and prepare for the catastrophic effects of extreme natural disasters. Meanwhile, the United Nations Framework Convention on Climate Change is holding its follow-up conference to last year's Copenhagen climate discussions in Bonn, Germany from May 31 to June 11. One of the main aims of that meeting is to decide how to distribute a multi-billion dollar fund designed to help the world's poorest communities adapt to the impacts of rising global temperatures.

"Above the World Bank entrance is the inscription 'our dream is a world without poverty'. It's an inspiring goal, but poverty is pervasive. Perhaps poverty should be defined not just as a lack of access to essential resources, such as clean water, but more specifically as a vulnerability to extremes that cause hunger, disease and homelessness," Mr. Douglas told delegates.

"Perhaps we should reshape strategies to alleviate poverty by either reducing exposure to extremes or increasing resilience. It's a subtle change in philosophy, but it raises fascinating questions about how we spend our aid budgets or focus other interventions," said Mr. Douglas.

Speaking at the World Bank event, Margareta Wahlstrom, United Nations Assistant Secretary-General for Disaster Risk Reduction, said, "The question that still confronts us is why countries repeatedly fail to mitigate risk ex ante and the world is repeatedly faced with growing loss of GDP, infrastructure and human lives."

The Understanding Risk Conference was part of a week-long agenda of events in Washington that included the Global Earthquake Model 2010 Outreach Meeting, the First Global Random Hacks of Kindness Hackathon - a partnership between Google, Yahoo!, Microsoft, NASA and the World Bank - and a Crisis Camp. Supported by the World Bank and the Global Facility for Disaster Reduction and Recovery (GFDRR) in partnership with the United Nations International Strategy for Disaster Reduction and others, the meeting brought together the science, development and insurance communities confronting catastrophe risks.

"The concept of this meeting stems from the idea that bringing people from different backgrounds, but concerned with the same problem, is the best way to spur innovation," said Francis Ghesquiere, Disaster Risk Management Lead for the World Bank's Latin America and Caribbean Region, who oversaw the proceedings.

Prior to the forum, more than 1,500 people from over 130 countries were engaged for six months in a number of on-line discussions related to the conference through the event's community website: Understanding Risk Community Site.

The Willis Research Network (WRN), funded and supported by Willis Re, the reinsurance arm of Willis Group Holdings (NYSE: WSH), the global insurance broker, is the world's largest collaboration between academia and the insurance industry. The research supported by the WRN is focused on evaluating the frequency, severity and impact of major catastrophes - from flooding to hurricanes and earthquakes - with the aim of helping society at local and global levels manage these risks and share the costs of these events via public and private sector approaches. To achieve this mission, the WRN has teamed up with more than 40 leading universities and scientific institutions across a full range of disciplines, from atmospheric science and climate statistics, to geography, hydrology and seismology, to assess the impacts on the environment via engineering, exposure analysis and Geographic Information Systems. More information can be found at


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