In recent years, the reinsurance market has established itself as a capable private partner for the public sector, as illustrated in its response to major events over the past 30 years. The sector remains well capitalized, and the expertise developed over decades of dealing with market-changing events, including those related to climate change, puts it in an unrivalled position to withstand most conceivable loss scenarios.
As the year got underway, climate change was widely viewed as the most serious threat to global prosperity. The annual risk perception survey of the 2020 Global Risks Report, published by the World Economic Forum in partnership with Marsh & McLennan, saw climate-related risks dominate the rankings in terms of both likelihood and impact. Guy Carpenter is a business of Marsh & McLennan.
Since then, climate change has fallen down the agenda as COVID-19 has risen up it. Although decision-makers were apparently blindsided by a virus, it does not mean their assessment of the risk posed by climate change was wrong, according to Rob Bailey, Director of Climate Resilience at Marsh & McLennan Advantage and Daniel Kaniewski, Managing Director of Public Sector Innovation at Marsh & McLennan Advantage. If anything, the pandemic has increased the threat.
Increasing vulnerability to climate impacts
Consider extreme weather, ranked the number one global risk in terms of likelihood. While the chance of catastrophic floods, heat waves, storms, or wildfires is unaffected by the pandemic, vulnerability to these events has increased massively. Governments, companies and households are stretched to a breaking point: they are all less able to cope and less able to recover.
The cycle of COVID-19 spread and country-level response is increasingly familiar. Exponential growth in infections overburdens health services and a de facto or de jure national emergency follows, as governments seek to “flatten the curve” through restrictions on movement, triggering job losses and sharp economic contraction. Governments can only hope that they come out the other side before the next climate-related disaster hits.
Countries and companies alike need to move faster if they are to address the reality of climate change and its attendant financial challenges. The reinsurance market has an important role to play by bringing private-sector risk management and risk capital to help address and narrow protection gaps.
Note: This article was first published in BRINK on May 13, 2020, and has been updated to reflect developments for the summer and fall of 2020.