22 January 2016 News

'Resilience insurance’ offers new revenue stream to Swiss Re

A new form of insurance dubbed ‘resilience insurance’ by Swiss Re has the potential to become a new source of revenue for the company, Agostino Galvagni, the chief executive of Swiss Re Corporate Solutions, told Intelligent Insurer.

He was speaking in the aftermath of the launch today (Friday January 22) of a new initiative by The Rockefeller Foundation, Veolia, and Swiss Re Corporate Solutions, brokered by the 100 Resilient Cities programme, that will help cities speed up economic recovery in the aftermath of catastrophic events for cities across the globe.

The partnership is designed to support cities worldwide in the areas of climate change adaptation, disaster risk reduction, infrastructure enhancement and recovery. Its aim is to ensure that critical infrastructure projects are repaired and working again as quickly as possible in the aftermath of a disaster.

Swiss Re and Veolia will work with cities to understand the risk exposure of critical assets under current and future climate scenarios – before a disaster strikes. Based on these assessments, cities can develop resilience plans to lessen the risk of these assets being affected, and simultaneously reduce their risk exposure over time.

When a disaster does happen, repair and rebuilding can be started immediately thanks to the contract the city has agreed already with Veolia and is backed by an insurance contract made available by Swiss Re under a memorandum of understanding. This risk transfer may take different forms depending on the circumstances but will most commonly be an insurance contract underwritten by Swiss Re Corporate Solutions.

Galvagni said that he sees a great need for such resilience planning in many cities around the world. With more than 70 percent of the population expected to live in cities by 2050, this initiative is much needed by many cities, potentially offering Swiss Re a new revenue stream as its expertise in risk management is also used to good effect.

“Effectively, our advice and expertise is free under this programme and cities will gain valuable knowledge on where they are vulnerable and how they can better protect their core assets,” Galvagni said.

“But a key component of this initiative is ensuring that critical infrastructure is repaired or rebuild quickly in the aftermath of a disaster. Swiss Re will provide the funds to do that based on a legal contract signed in advance. Given the trends of urbanisation and climate change in the world, we expect there to be great demand for this product long term.”

This form of ‘resilience insurance’ may provide an up-front fee or premium, depending on the nature of the contract. It's not a standardized product however with a pre-described set of parameters, including cash flows and a joint offering will be developed in dialogue with each city based on its needs. This new form of insurance could represent a potential opportunity for both Swiss Re and the wider industry long term.

“We believe this could be a growing line of business for us as a company. We see a great need for this across the world,” Galvagni said.

He added that Swiss Re Corporate Solutions would be unlikely to partner with other re/insurers on this business, however, stressing that Swiss Re is a big net underwriting able to take on and keep the risk itself.

He also stresses that this is more than a business opportunity. “This is a good example of the risk transfer industry using its expertise and resources for a greater good,” she said. “We have the knowledge and a project like this can ensure millions of people around the world will benefit from that.”

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