Mar 8: The Geneva Association, which says it is the leading international insurance think tank for strategically important insurance and risk management issues, published the Geneva Report No 5: Extreme events and insurance: 2011 annus horribilis, a global and detailed picture of the major 2011 natural catastrophes and an analysis of the role and mechanisms of insurance in managing climate risk and other extreme events.
The report comprises nine essays by leading insurance academics, economists and insurers that underline the significant importance of risk adaptation and management measures in developing physical and economic resilience to natural catastrophes, including the important role of insurance in such mechanisms. It also provides the implicit "lessons learned" from the catastrophes that will enable better risk assessment and adaptation to similar risks in future. The report indicates that 2011 was an unusual year with regards to the regional distribution of events and the proportion of geological activity in the total number of events but one consistent theme is the global need for adaptation and risk reduction measures. The report highlights how a clear and transparent allocation of risks and responsibilities among public authorities, private firms, including insurers, and individuals is a key component of any comprehensive disaster risk management strategy.
The first section of the report, "Insurance and Extreme Events" provides a broad overview of both the economic and insured losses of the 2011 natural catastrophes and a description of the insurance role in managing extreme events. This is followed by an analysis of the potential of public-private initiatives to cover extreme events and the development of catastrophe bonds and other risk-linked securities as sources of capital to for insurance mechanisms. The second section, "2011 Events and National Studies", analyzes the five most significant natural catastrophes of 2011, namely the March 11, Japanese earthquake, the Australian and Thai floods, the New Zealand earthquakes, and the U.S. tornadoes. Each chapter provides a detailed description of the nature of the event, its impact on local insurance markets, and any lessons learned for the management of similar risks in future.
Walter Stahel, Vice Secretary General and Head of the Risk Management Programme of The Geneva Association said, "Predictions suggest that by 2025 more than 5.5 billion people worldwide will live in cities and a large proportion of them close to regions prone to extreme events. It is also likely that powerful extreme events will affect several of these large urban areas in the coming decades. Governments and decision-makers should keep the dramatic events of 2011 in mind and recognize the potential seriousness of this situation. The insurance industry is one part of any solution for efficient catastrophe risk management. Without a real effort from all stakeholders, including governments, to develop and implement such programmes, it seems inevitable that the worst is yet to come."
Michael Butt, Chairman of AXIS Capital Holdings and co-Chair of The Geneva Association's Climate Risk and Insurance Project said, "The nature and scale of the challenge of natural catastrophes is greater than can be covered by insurance alone. The principle reason for increasing damage and loss figures are more socio-economic changes rather than changes of natural variability. A closer cooperation and collaboration between governments, industry and insurers is needed to manage disaster risks and to reduce the financial impact of extreme events."
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