Resilience – Overcoming natural disasters
Losses from natural disasters are increasing in many parts of the world. Since even the best risk management cannot actually prevent major loss events, the focus must be on managing them. The keyword here is resilience, and insurance cover against natural hazards is a major component of this.
Hurricanes, floods and earthquakes – human beings are powerless to influence where Mother Nature will strike next, and with what intensity. However, the extent to which such events have a fortunate outcome or destroy people's livelihoods is by no means a matter of chance. Warning systems, safe buildings and well-coordinated aid and relief services can help ensure as many people as possible come through a loss event unscathed and recover quickly from its consequences.
Yet long-term impacts are inevitable if an extreme natural event hits people who are poorly prepared and vulnerable. Such was the case in Haiti, which still remains largely paralysed today after the destructive earthquake of early 2010. In October 2016, Haiti was hit by Hurricane Matthew, the consequences of which were many times worse because the country had not recovered from the earthquake damage. In contrast, life returned to normal long ago in Chile and New Zealand, two countries that were also hit by powerful earthquakes in late February 2010 and early 2011 respectively. It is a fact that countries with low economic strength and poorly developed social systems are particularly vulnerable.
The concept of resilience is relatively new in the context of disaster reduction. It is characterised by resistance and flexibility and aims at quickly returning life to normal. However, it would be a mistake to see resilience merely in terms of resistance and vulnerability. This is because the ability to respond flexibly is a precondition for quickly restoring normal conditions after a disaster. It would also be short-sighted to see resilience simply as an emergency response system, because the crucial criterion for resilient systems is that they are able to restore all key functions as quickly as possible.
Features of resilient societies
Because accidents and crises can occur at any time and at any place, the concept of resilience can serve as a guide for disaster protection, crisis management and damage limitation.
Resilient systems must meet a range of different requirements, based on the fact that resilience covers both preparation and damage limitation, and the ability to respond appropriately following an event. Firstly, they must be properly set up to combat extreme events through appropriate measures (Prepare) to ensure that a loss does not happen in the first place (Prevent). If it happens nevertheless, the protective measures established beforehand need to work properly to minimise the consequences (Protect). The next phase (Respond) relates to the system‘s agility, which is dependent on prompt, well-organised and effective emergency aid. Once the acute hazard is over, the rebuilding phase can begin (Recover). At this point, it is crucial that lessons are learned to ensure the system is even better prepared for future events. So resilience is not a static condition, but rather a characteristic of systems that are adaptive, flexible and constantly evolving.
Resilience efforts in practice
The topic is also gaining importance on a global level. The UNISDR, for example, has launched a campaign entitled "How to Make Cities More Resilient". The rationale behind this is that, with the global trend to urbanisation, resilience of cities is key.
Highly vulnerable low-income countries with inefficient public bodies and poor infrastructure frequently struggle to achieve a sustainable strengthening of resilience. The statistics send a clear message: more people die from natural disasters in such countries than in rich countries, both in absolute terms and relative to the total population. Part of the reason is that in many of the poorest parts of the world, weather extremes like floods and droughts pose a greater threat to both the lives and the economic and environmental foundations of entire communities there. Loss prevention measures and early-warning systems offer substantial improvement.
Insurance as an instrument for strengthening resilience
After a disaster, focus shifts to coping with the consequences. This includes both humanitarian aid and financing systems. Insurance is a central component in managing the economic consequences by facilitating prompt repair and reconstruction measures.
The results of scientific research show that well-functioning financial and insurance markets provide a markedly positive stimulus. One example is after the 2012 drought in the USA, when the US agricultural insurance scheme assisted many farmers with payments. Without these payments, it is highly likely that agricultural production would have been affected in 2013 as well. The system is a public-private partnership (PPP), where the private insurance industry provides its expertise to help ensure accurate risk assessments and rapid payouts. Since, alongside the government support, the farmers pay part of the premiums themselves, they also have an incentive to implement loss-minimising measures.
Generally speaking, adequate insurance protection can cushion the effects of natural disasters in two ways. Firstly, it motivates insurers to take preventive measures in order to save money on insurance premiums. Insurers allocate a price to the risk to be insured, thereby increasing the incentive to lower that price through implementing measures to minimise the risk. Secondly, payments following a disaster provide prompt financial relief, so that the reconstruction of factories, for example, can be tackled without delay. Recent studies show that if you take two countries with identical per-capita income, the country with higher insurance cover will be more resilient to natural disasters.
G7 embraces climate insurance
The realisation that insurance can make a key contribution to strengthening resilience was reflected in the negotiations to reach a global climate protection agreement. The Paris Agreement at the 2015 climate summit mentioned insurance solutions as a way to facilitate adaptation to climate change. At the G7 summit in Elmau in June 2015, the member states agreed to launch a climate insurance initiative (InsuResilience), highlighting the importance of financial risk transfer concepts, particularly for emerging and developing countries.
The objective by the year 2020 is to expand insurance coverage against weather disasters in developing and emerging countries, an initiative from which around 400 million people will benefit. This will be organised either on a macro level with insurance cover for entire countries, or on a micro level with policies for individuals. In April 2016, representatives from UN organisations, the World Bank and the insurance industry announced the establishment of the Insurance Development Forum (IDF) to support projects like this. It is planned to incorporate the insurance industry's risk expertise into government regulations to reduce risks and improve access to the insurance system for those sections of the population most in need of protection. Today, we already see pool solutions in operation in some African countries, in the Caribbean, as well as in Pacific island states.
Summary: A better understanding of the concept of resilience and subsequent recommendations for political decision-makers can help achieve a significant reduction in the loss of life and the financial, social and environmental damage resulting from natural disasters. Insurance cover against natural hazards is a key component to allow a population to get back on its feet as quickly as possible after a loss.