Author: Antoine Bavandi
In the face of the slow and uneven implementation of the Paris Agreement, the average global temperature increase is likely to exceed the target of 2°C compared to pre-industrial levels. As further evidenced by recent catastrophes, extreme climate events will have even more dire consequences, affect millions and cause disruptions in ways never seen before. The need to address adaptation and resilience to climate risk has never been more urgent, and may be the greatest challenge governments, businesses and people face in the future.
Shoring up climate resilience is not a small task, however. It can only be achieved with action from multiple parties including governments and public organizations, businesses, investors, civil society and individuals, each of whom must have the capacity to prevent, anticipate, absorb, adapt to increasing shocks and transform their operations into climate resilient systems.
Other sectors and disciplines also need to play their part, with immediate action required in certain areas, and future planning and preparedness objectives in others. Think food and agriculture, finance, infrastructure, as well as engineering, climate science, economics, (re)insurance. Each of these sectors will be facing additional challenges posed by a wide range of perils and impacts of climate change, from slow-onset events such as droughts and heatwaves to acute events such as tropical cyclones and floods.
There is proven leverage in resilience and adaptation, as well as risk management and insurance. Climate adaptation encompasses a broad range of actions that address current and future climate change consequences, by adjusting to risks or by leveraging opportunities, and by reducing the vulnerability of populations and systems to future shocks.
Risk management is a specific approach to assess, transfer or share risks, to prevent and reduce impacts on livelihoods, businesses and economies.
Climate risk adaptation, reduction and transfer are complementary. There is a natural complementarity between adaptation, risk reduction and disaster insurance. From a policy perspective, it is most effective to take an integrated approach to addressing these challenges. First, when hazard losses are lowered through more resilient systems or risk mitigation techniques, the cost of insuring the residual risk decreases. Second, insurance programs can help overcome financing challenges or provide incentives for risk reduction investments. Insurance also offers an ideal risk benchmarking tool to inform decision-makers on the most sustainable investment opportunities.
Early identification of resilience objectives will allow for informed and more effective adaption strategies. As an example, flood adaptation strategies that are underpinned with clear resilience objectives (such as maximizing business continuity through optimal use of mitigation and insurance for up to 1-in-100-year events) will be significantly more effective than those that are not.
Looking again at this example, identification and application of resilience objectives within adaption strategies would enable:
- a series of actions for reducing risks (such as analysing hazard probability, exposure and vulnerability and building flood defenses where most impactful) before flood events
- enhanced preparation, response and recovery capacities for when a flood occurs
- risk transfer policies to be secured should residual risk be too costly to mitigate
Gallagher Re can support with:
- Holistic and robust climate risk advisory services that enable an understanding of existing and future risks on governments and corporations, as posed by a wide range of sources, and through direct and indirect loss transmission channels
- Climate-adapted risk analytics, for short and longer-term threats and perils
- Translation of loss scenarios into financial impact analyses
- Design and structuring of risk transfer mechanisms, including optimal retentions, (re)insurance and credit lines
- Facilitating alternative capital access without the need for balance sheet insurance companies
- Introduction of insurance-linked securities (ILS) capacity to risk transfer arrangements
- State-of-the-art analytics and a strong network of academic research institutions to access the latest climate risk models and reliable risk information
- Best practices and practical lessons learnt from international experience and public-private sector clients alike
Gallagher Re Public Sector, Parametric and Climate Resilience Solutions group
Gallagher Re’s Public Sector and Climate Resilience Solutions practice is dedicated to strengthening the resilience of public and corporate clients against the financial impacts of climate and disaster risks. The global practice uses a problem-solving approach that connects all dimensions of resilience and focuses on unlocking the full benefits of financial risk management. As a result, our clients are best positioned to better understand their financial vulnerability, minimize risk and create new resilience pathways to sustainable growth.
