‘It’s not enough’: why insurers must deepen their resolve
As the insurance industry stands at a crossroads, facing unprecedented climate and geopolitical challenges and a drive towards sustainable development, the path forward requires the industry to deepen its resolve around its societal value.
Daniel Stander (pictured), special advisor to the United Nations Development Programme (UNDP), offered some insights into how the industry can rise to the occasion with a more holistic approach.
“Insurance is not a pancea,” he told Monte Carlo Today. “However, there is certainly a positive correlation between insurance penetration and the likelihood that a community will be able to fulfil both its economic and human potential.”
Stander added that the industry’s focus must be on developing solutions that “work in an integrated way within a specific development context.”
“It’s not enough – for a global capital provider to simply design a parametric product that pays out as it should,” he argued. “The industry needs to be asking itself many other, more strategic questions.
“Is the solution pro-poor? Is it gender-responsive? Will it provide what is needed when it is needed by whom it is needed? Does it embed ‘kaizen’? Does it empower those at risk? Does it strengthen the social contract between the vulnerable and those providing the safety net? Does it promote value-for-money interventions beyond simply transferring risk? And, perhaps most importantly, does it work symbiotically with a suite of other techniques for building resilience over the long term – from the hyperlocal to the supranational?.”
Stander firmly believes that “only by thinking about such questions can the insurance industry deliver on a promise of climate equity – and fully realise its societal value.”
Stressing the pressing need for innovative collaborations and strategic actions in the sector, Stander remarked, “well-aligned, risk-informed, public-private finance, steered by the right policies and coordinated with industry, will largely determine whether we live in peace and prosperity or insecurity and constant want.”
He also underscored the importance of political risk insurance in conflict settings, such as in Yemen and Ukraine. “Sustainable finance has a big and important role to play in fragile states,” he said.
Pointing to the staggering cost of rebuilding Ukraine, estimated to be $411 billion, he asserted that “funds from donor nations alone will never be enough. The private sector has a major role to play.”
“But, without a functioning political and war risks market, private capital will not be able to participate.”
While Stander acknowledges the complexity in crafting a public-private partnership “that provides the right insurance at scale,” he remains optimistic that, with the right stakeholder coordination, this can be achieved.
“We are in an era of polycrisis,” he stated, indicating that today’s challenges are multifaceted, recurring and intertwined. “We therefore require multi-year, integrated development solutions.”
On a positive note, he highlighted emerging collaborative efforts that promise change. One such partnership involves Resilient Cities Network (R-Cities), the Sustainable Markets Initiative, and the global insurance broker Howden. Their Global Risk & Resilience Fellowship places insurance experts directly within city governments, equipping them with the knowhow to navigate, address, and finance the mounting climate-related exposures and aiding in crafting risk finance solutions.
Another notable endeavour, Stander pointed out, is the Resilience4Communities programme with the Z Zurich Foundation in cities across North America, Europe and Asia, that zeroes in on the pressing challenges of climate inequality.
The FSO Safer operation in the Red Sea, backed by a UN-led insurance initiative, also serves as a compelling example. “FSO Safer is one of the most complicated risks I’ve ever seen underwritten. It was an extraordinary achievement, and one that was at first deemed impossible,” Stander said.
Insurance here was an “essential ingredient”. Without the financial security afforded by the coverage, this delicate operation would not have been able to go ahead, he added.
“There’s much for the industry to take pride in here – and yet there are lessons too,” Stander noted. “The industry is stronger when it works together, trusting a lead underwriter and syndicating large risks across the market.”
For the future, Stander’s advice to insurers is clear: design solutions that resonate with broader developmental objectives, urging insurers to “be prepared to subsidise premiums in sustainable ways.”
Solutions should be “pro-poor, gender-responsive and empower those at risk,” he said
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