We must build resilience to face the future – but will we be fast enough?

fire

(Unsplash, 2019)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Christian Mumenthaler, Group Chief Executive Officer, Swiss Re Group, Switzerland


The effects of climate change are undeniable. Ice caps are melting, sea levels are rising and according to recent projections, 2018 is likely to go down as the fourth-warmest year on record. At the same time, the frequency and intensity of extreme weather events is increasing. No doubt you will have read about the devastating consequences of last year’s heatwaves, droughts and wildfires in Europe and California, floods in India, or typhoons in Japan and the Philippines.

What is at stake is visible in the figures: tragically, more than 11,000 people lost their lives in the catastrophic events of 2018. And we at Swiss Re estimate that total economic losses from natural and man-made disasters in 2018 amount to around $155 billion, of which approximately $79 billion are insured. Individuals, companies and governments carry the remaining financial burden. With population growth and more people living in areas that are prone to natural disasters, climate change has the potential to even further impact societies and threaten entire economies.

The re/insurance industry plays an important role in helping people and businesses get back on their feet after events like those in 2018, and in accelerating the transition towards a low-carbon economy. But to address a challenge of such magnitude, we need to collaborate across sectors, and urgent, large-scale changes from governments, companies and individuals are required.

A need for stronger public private partnerships

To make real gains towards strengthening resilience, more public-private partnerships (PPPs) are crucial. They help countries become stronger financially, as well as prepare for and bounce back from the effects of climate change. Just as insurance smooths financial volatility for individuals and businesses, it does the same for countries. Consider the Caribbean nations, which are heavily exposed to tropical cyclones, earthquakes and excessive rainfall, and where funding relief measures and maintaining vital government functions after a disaster creates a significant funding challenge. The Caribbean Catastrophe Risk Insurance Facility (CCRIF), a multi-country risk-pooling initiative, provides Caribbean countries quick access to emergency funding by using parametric policies that are automatically triggered based on the physical characteristics of an event. For example, when Hurricanes Irma and Maria caused significant damage in the Caribbean in 2017, payouts were triggered without the need for time-intensive loss assessments on the ground.

Three dimensions for strengthening resilience

There is enormous potential for even more cooperation between the public and private sectors – and it is urgently necessary to strengthen and improve resilience. The financial market landscape has changed significantly since the global financial crisis of 2008/09 and central banks have become dominant market players. With higher debt burdens, weaker financial market structures and a move to less openness, the global economy today actually has less capacity to absorb shocks than it did 10 years ago, as shown in our latest sigma outlook published by the Swiss Re Institute. Interest rates have been kept too low for too long. In fact, the stock of negative yielding sovereign bonds amounts to $9.5 trillion globally – putting that into perspective, that is equivalent to around three-quarters of China’s GDP. Deposit rates remain negative in a number of countries and this is counterproductive, especially now with the structure of the yield curve in core currencies. Progress on structural reforms has been slow, meanwhile – held back in part by ultra-expansionary policies. We therefore encourage policymakers to focus on increasing competitiveness at the national level and cooperation at the global level, as outlined by the G20 Eminent Persons Group report on Global Financial Governance.

Policymakers should focus on three dimensions:

1) Encouraging private capital market solutions

The change in market ownership from private to public players over the past 10 years has had several unintended side effects, including crowding out long-term investors such as re/insurers, which are a central component of system resilience. A more supportive policy environment would enable the private sector to play a bigger role in building resilience and help to alleviate government-contingent liabilities. For example, re/insurers could play a key role in narrowing the global pension gap – which is forecast to grow by 5% annually to $400 trillion by 2050 – by providing risk-transfer solutions for underfunded private pension schemes, and annuity products to encourage more discretionary saving for retirement.

2) Introducing a tradable infrastructure asset class

At the same time, new asset classes and products should be developed – for example, to address the large infrastructure financing gap, estimated at $97 trillion through 2040 and relieve the burden on government budgets. The starting point for establishing a tradable infrastructure asset class is promoting standardization and transparency through a common disclosure framework and related documentation. This would go a long way towards unlocking the global re/insurance sector’s estimated $30 trillion of assets under management for investments in critical infrastructure projects that support the low-carbon economy. It would also strengthen our industry’s dual role: as well as pricing and underwriting the risk of adverse climate-related weather events, we would invest in long-term resilience-building projects. As such, we not only focus on mitigating climate risks, but also adaptation, which is crucially important.

3) Promoting sustainable investing

Additionally, further progress towards a common classification system – a so-called taxonomy – for sustainable finance is needed, outlining whether an economic activity is environmentally sustainable. Through close collaboration between the private and public sectors, policymakers should establish a risk-based market-consistent regulatory framework for environmental, social and governance (ESG) investments and increase the importance of ESG in financial analysis. As well as making economic sense, including sustainable considerations in investment processes would help to strengthen our economies and societies now and for future generations.

Will we be fast enough?

Globalisation 4.0 must be truly different from what we have seen so far. New approaches, policies and a shift towards long-term thinking are urgently needed to create a more resilient future. Building a solid macro-economic environment and resilient societies is in the interest of both the public and private sectors – recent market volatility only underscores this need. With no time to spare, let’s combine our knowledge and resources and partner up to help reduce threat of climate change, create next wave of economic growth and, in doing so, secure the future for generations to come. The question is: will we act fast enough?

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Gender Equality as a platform to improve Medicine

Egypt urged to free prominent couple jailed arbitrarily since last June: UN rights office

UN refugee agency presses States to aid 49 refugees stranded on Mediterranean

EU budget: Commission proposes €1.26 billion to reinforce the European Solidarity Corps

The IMF sees Brexit’s ‘substantial impact’ while the world’s economy holds its breath

New Zealand will have a new ‘well-being budget,’ says Jacinda Ardern

Islamophobia is driving more US Muslims to become politically engaged, suggests report

Virtual Doctor: a core part of modern healthcare?

Why this is the year we must take action on mental health

Brexit may finally not really happen; The Brits have second thoughts

CO2 emissions on the rise for first time in four years, UN agency warns

Tax crimes: MEPs want EU financial police force and financial intelligence unit

Europe bows to Turkey’s rulers, sends Syrian refugees back to chaos

Tobacco-free Public Space in Africa’s Most Populous Country

Trump to subject the Fed, challenge the ECB and make Wall St. bankers even richer

Meet the Junior Enterprise network at JEWC 2014!

Tusk fights back while charismatic Boris goes against everybody in Brussels pushing the UK to leave the EU now or never

Respect for fundamental rights and freedoms key for peaceful polls in DRC – UN mission chief

The role of junior entrepreneurs as a bridge between academia and business world

Our idea of what makes a company successful needs to change. And it starts with making waste expensive

EP Group leaders on Brexit: “the agreement is not open to renegotiation”

These countries are driving global demand for coal

International Day of Cooperatives sets stage for long-standing production and consumption

Eurozone: Subdued inflation can lead to more recession

South Sudanese refugees need $2.7 billion, as safe return remains elusive

Draghi to lay his print on long term ECB policies prior to exiting next year

2014 budget: The EU may prove unable to agree on own resources

Russia and the West use the same tactics to dismember Ukraine

Giving humanitarian help to migrants should not be a crime, according to the EP

Does upgrading our minds mean losing the spark of genius?

JADE Handover Ceremony at the European Parliement

China is now heavily endorsing its big investment flow in the Central Eastern European (CEE) countries

These are the world’s healthiest nations

With a premature death every five seconds, air pollution is violation of human rights, says UN expert

FROM THE FIELD: Keeping Morocco’s indigenous culture and conservation in balance

This Indian school accepts plastic waste instead of fees

The fatal consequences of troika’s blind austerity policy

Trump to run America to the tune of his business affairs

With millions of girls ‘at risk’ today of genital mutilation, UN chief calls for zero tolerance

UN Forum examines three pillars of 2030 Global Goals

Parliament in favour of lifting visa requirements for Kosovars

Why we need a moderate approach to moderating online content

A young person’s perspective on the Paris and Beirut attacks and aftermath

Why business can no longer turn a blind eye to poor vision

Cyber attacks are shutting down countries, cities and companies. Here’s how to stop them

EU lawmakers vote to reintroduce visas for Americans over “reciprocity principle”

How migrants who send money home have become a global economic force

Permanent structured cooperation (PESCO) on the table of NATO Defense Ministers amid US concerns

The EU heads of State and Government about the result of the European Elections 2019

A shortened EU Summit admits failures, makes risky promises

MWC 2016 LIVE: Stripe gives payments leg-up to startups in emerging markets

How banks should prepare for robots going rogue

EU: Huge surplus in the trade of services with the rest of the world

New rules on drivers’ working conditions and fair competition in road transport

The Fourth Industrial Revolution needs a social revolution, too. Here’s how we can make this happen

On Kristallnacht anniversary, UN chief urges renewed fight against ‘crime’ of anti-Semitism

WhatsApp to face scrutiny from EU regulators task force over data sharing with Facebook

At Arab League Summit, Guterres reaffirms strong link between UN and people of Arab world

5 reasons to be more cheerful about the future of the oceans

Macron defends the idea of European sovereignty

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s