Re/insurers must collaborate on climate change

Climate change is real and has catastrophic implications if not managed and prepared for. The re/insurance industry must collaborate with all other parties to get a grip on the consequences of global warming, says K Sanath Kumar, acting chairman-cum-managing director, GIC Re.

Climate change and its consequential catastrophic events are no longer a topic of academic discussion. There has been no let-up in these events across the globe. These have been growing in regularity and severity.

The problem is further compounded by the fact that today these occur where they are perhaps not expected. In addition, the surprise factor that they carry with them is a great challenge for us in the emerging economies as we continue to grow and develop.

With economic progress comes urbanisation, with the required infrastructure and huge investments but without adequate disaster mitigation and loss prevention measures in place. This increases the vulnerability of these newly developed urban centres of growth to catastrophic events and threatens to actually halt the growth and development of the emerging economies.

Natural catastrophic events are a reality that cannot be wished away. They impact the entire global population—and insurers are no exception. These events affect us drastically, as we take upon ourselves the risks of others. To maintain our health in this scenario would be another big challenge for us, especially in emerging insurance markets like ours in India where an insurance culture is yet to take off in a big way.

We are an emerging insurance market, still to plant our feet firmly, and these natural catastrophes can upset our apple cart. We need to continue to innovate and adapt to the changing scenario, to survive and grow. Our biggest challenge in the emerging insurance markets is to understand what we need to do immediately in both the short and the long term to arrest the deleterious effects of climate change and how it impacts us.

It is also imperative for us to appreciate that we as an industry cannot develop in isolation of the rest of the society, especially when the insurance gap is so conspicuous. Only about 10 percent of economic losses are covered by insurance in the emerging markets. The 90 percent gap between the insured and uninsured is too glaring and it is unnerving. The non-life insurance penetration is also just around 0.4 to 1.5 percent in the emerging markets, well below the global benchmarks.

Learning from others

At the same time we need to take into account our social responsibility towards the society in which we grow and develop. We as an industry are still very young in these markets and can change our course to avoid the pitfalls that the developed markets have experienced. Thus, we can continue to maintain our growth trajectory.

The question that we need to ask ourselves at this stage is if we are learning from our own and also from the experiences of others to maintain our pace of progress over the last couple of decades?

The developed insurance markets work with the aid of models to which we, in the emerging markets, have not much recourse to. The growth of our economies has not been very systematic and thus is largely unmodelled. Plus we do not have much legacy data to fall back on. This adds to our dilemma: how to ensure our own survival and also how to bridge the gaping insurance gap.

Very often we speak about pricing our risks correctly, but is it really possible? I appreciate that we need to adopt risk-based pricing to maintain our own health as an industry. But this comes with a rider. In most of the emerging markets, even in high-risk areas, the cost of risk-based insurance would be out of reach of a majority of the sections of the society.

We as a society need to contribute in our own way to arrest the deterioration in the risk scenario, so that we can price our products more affordably, both for us and for our neo-customers.

We need to work with governments, civic society and also the scientific community to ensure that we are ready with a more comprehensive response to such catastrophic events.

Across the globe, risk mitigation should be the watchword. This can happen only through larger participation of public and private sector together for dissemination of information and raising of awareness about what can occur if global warming is allowed to continue unhindered. This collaborative action can encourage innovative solutions that will have the potential to mitigate the losses that are associated with severe catastrophic events.

K Sanath Kumar is the acting-chairman-cum-managing director of GIC Re. He can be contacted at: cmd@gicofindia.com