Good morning, ladies and gentlemen. As Co-chair of the Steering Committee of the Insurance Development Forum (IDF), I am delighted to be here. I would like to thank the International Insurance Society (IIS) for putting together this wonderful event and devoting the third day to the IDF and its mission. This day will serve as an opportunity to raise awareness about the IDF and help strengthen the long-term collaboration within this unique public-private partnership.
It is my distinct privilege to share the stage with the Rt. Hon. Lord Bates [Minister of State, U.K. Department for International Development (DFID)], and I salute him, Secretary of State Priti Patel, and the insurance team at DFID for their hard work in making the Centre for Global Disaster Risk Protection (or “London Centre”) a reality.
Today is indeed a very auspicious occasion. We celebrate the formation of the London Centre as a critical stepping stone in helping vulnerable and exposed countries enhance their resilience to natural disasters and climate risk (and mitigate the associated economic impacts). The importance of establishing a hub of technical expertise on risk management, risk financing and disaster planning like this cannot be overstated given the pressing challenges arising from the gradual but catastrophic impact of climate change.
For many countries, the adverse impact of climate shocks is already a reality. Climate shocks and natural disasters can have acute implications, ranging from migration caused by fragility and conflict situations, to the risk of pandemics. It is estimated that 93 percent of people facing extreme poverty today are in countries that are exposed to natural disasters or are politically fragile, thus amplifying the impact of any shock, or in many cases both. The IDF is our collective chance to make a difference.
As you are aware, the IDF has come a long way since its creation was announced at the 2015 Paris Climate Summit. The IDF is focused on closing the protection gap by insuring an additional 400 million people affected by disaster risk and climate change by 2020. In the last year and a half, it has made tremendous progress towards:
· Consolidating global knowledge on risk models,
· Addressing regulatory and legal barriers to greater use of insurance and other mechanisms of risk sharing or transfering, and
· Scaling up effective delivery mechanisms, including humanitarian assistance and micro-insurance.
But our collective ambition should be broader—I am convinced we can build more resilient societies. We can increase the use of risk management solutions to strengthen the financial resilience of EMDEs against a wide range of threats arising from natural hazards and climate change. Risk sharing mechanisms, specifically insurance, can play a tremendous role for this purpose.
Helping exposed or vulnerable countries is a priority for the World Bank to achieve our twin goals of eliminating extreme poverty and boosting shared prosperity. The economic impact of weather extremes and natural disasters can derail development, setting back the gains of years of investment. I agree with Lord Bates, however, that risk sharing is only one part of a comprehensive resilience framework. Building domestic capacity to prepare for disasters and mitigate their physical impact is equally important.
We already know that finance together with other policies can make a difference. The World Bank—through our Disaster Risk Financing and Insurance Program (DRFIP)—has developed a diverse array of instruments for financial protection to help governments
· Better manage the cost and structural implications of disasters,
· Ensure predictable and timely access to financial resources, and ultimately
· Mitigate the long-term fiscal impact by proactively managing disaster risk that cannot be fully mitigated (because doing so is not feasible or not cost-effective).
Through important partnerships, sovereign risk pools are gaining traction. Examples of these sovereign risk pools include the Africa Risk Capacity (ARC), the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI).
Insurance solutions can stimulate greater preparedeness. By helping price risk, insurance demonstrates the value of other aspects of comprehensive disaster risk management, such as preparedness. Greater preparedness involves (i) preventing or avoiding the generation of new risks and (ii) reducing or mitigating existing risks.
Better infrastructure is a critical component of a strategy to help countries be better prepared and improve socioeconomic resilience. Good infrastructure can help reduce disasters and dislocation, containing their impact on people’s lives. Insurance companies, as investors, can of course potentially play an important role in the long-term financing of critical infrastructure as an investment. But I am convinced insurers can play an even larger role through the liability side of their balance sheets, helping insure construction and other risks associated with infrastructure. It can also help improve project quality, since their underwriting expertise offers detailed risk assessment of the critical infrastructure.
Ladies and gentlemen, only a meaningful collaboration between the public sector and the insurance industry can deliver cost-effective risk management tools and the consequent benefits. That is why we are committed to the IDF and its objectives so that we can identify and address areas where cooperation with industry could be further enhanced.
We know that the challenge before us in meeting our ambition is far too great for any one organization to address alone. We want to see policies for disaster risk mitigation that include different public and private sector solutions. This is why we see the World Bank’s role—especially in the context of the IDF—as a neutral and strategic adviser to governments that want to build capacity in countries so they will be able to access the market on their own in the future.
We embrace the G20 Global Partnership for Climate and Disaster Risk Finance and Insurance Solutions and see today’s initiatives and the work of IDF as important means to fulfill this vision. This Global Partnership was just discussed at the G20 Summit in Hamburg, and has evolved from the G7 InsuResilience initiative. Its objective is to (i) incentivize loss reduction, (ii) build resilience, and (iii) enhance disaster risk coverage for poor and vulnerable people and countries.[1] We will move this agenda forward through donor-funded and World Bank-administered technical assistance facilities that will (i) provide data analytics; (ii) offer assistance, training and capacity building on financing strategies and contingency planning; (iii) design and implement new insurance products; and (iv) support the development of domestic (private) insurance markets. One of these technical assistance facilities is DFID’s London Centre.
The London Centre is complemented by the technical assistance facility that has been seed-funded by Germany’s BMZ.[2] On this occasion, I would also like to acknowledge Germany’s contribution to the disaster risk finance and insurance agenda and its critical role for the G20 Global Partnership.
From the perspective of the IDF, an important aspect of the London Centre will be the proposed Insurance Development Program for several pilot countries that have enabling conditions for market development. Focusing on countries that are more prepared to engage in a dialogue on disaster risk mitigation and insurance protection, possibly supported by premium concessionality for sovereigns, could create quick wins.
IDF’s involvement in these pilots will help inform the types of market activities needed to expand insurance coverage. This could include programs that:
· Strengthen the capacity of key stakeholders, such as supervisors and governments,
· Improve data analytics on key market segments and risk modelling, as well as
· Create a supporting regulatory environment.
In particular, the IDF can coordinate industry input into upstream country diagnostics that have the potential to open up markets and shape the development agenda. Its members’ unparalleled knowledge will be used by the London Centre to open up markets and shape the development agenda.
We celebrate today’s achievement, but know that there is still a lot to be done for the most vulnerable countries, especially on risk modelling. Countries such as Bangladesh, Pakistan, Sri Lanka, and Vietnam have low risk model coverage and are quite vulnerable. The same is true for numerous African countries. More generally, we find that risk model coverage is lower in countries with higher disaster risk exposure and weaker socioeconomic resilience (and, thus, are more vulnerable). Especially in low- and middle-income countries, data availability is a significant challenge in model development, pointing to a priority of the Lonon Centre.
So IDF continues with a lot to do over the near term. Many models require refinement, possibly stimulating entrants in this field, and improving the generation and sharing of data. Also, as a former finance minister, I know full well that many budgetary, legal and administrative rules do not have a risk management approach. The absence of such a framework can make it very difficult for countries to adopt risk management solutions, including the transfer of risk through insurance instruments. Addressing this gap is key to increase use of market risk instruments. Having the right legal and regulatory environment for resilience policy through a consistent and transparent framework is critical to increasing insurance coverage in EMDEs. The IDF can facilitate this transformational change.
Ladies and gentlemen, in closing, I want to again express how pleased I am about the growing momentum around disaster risk financing; and I am very encouraged by the role the World Bank continues to play in the work of the IDF and the way it has contributed to the design and implementation of the London Centre.
Much has been achieved already, but there is still a lot of work ahead to help vulnerable countries enhance their resilience to disaster risk and climate change. In this endeavor, it is essential that we have a strong commitment from industry to help us scale up disaster risk financing. We are just at the beginning of this journey for the IDF, but I have full confidence in our strong partnership—to support our ambition and conviction. Thank you.
[1] The World Bank Group has contributed to this G20 initiative through a technical contribution on “Sovereign Climate and Disaster Risk Pooling” based on our past experience and remains the main provider of technical assistance through its Disaster Risk Financing and Insurance Program (DRFIP).
[2] This technical assistance facility is the InsuResilience Climate Risk and Insurance Program Multi-Donor Trust Fund, which was established by Germany as main donor at the end of June (EUR 20 million). The objective of the Trust Fund is to strengthen the financial resilience of developing countries to protect poor and vulnerable people and livelihoods against the risks arising from climate change and natural hazards with a view to achieving the objective of the InsuResilience Initiative on Climate Risk Insurance.
