Resilience and adaptation: preparing for COP27

Ekhosuehi Iyahen juggles many tasks, but she has a single message that unites them all: there is a critical need to “reimagine” insurance. As secretary general of the Insurance Development Forum (IDF), she has a lot to share that makes clear this is an opportunity the sector must not miss.

Despite the huge scale of the initiatives that the IDF launched at the United Nations climate talks in Glasgow last year, it will already be able to demonstrate at COP27 in Sharm el-Sheikh next month the clear operational progress that has been achieved.

COP26 saw the signing of a formal partnership between the IDF and the V20 Group of Ministers of Finance, the establishment of the Global Risk Modelling Alliance (GRMA), and the announcement of the Global Resilience Index Initiative (GRII). In addition, the IDF has been working with the United Nations Development Programme (UNDP) and Germany’s Federal Ministry for Economic Cooperation and Development (BMZ) on the Tripartite Agreement they signed during the United Nations Secretary General’s Climate Action Summit in September 2019.

In an interview with Bermuda:Re+ILS, Iyahen said public-private partnerships with countries deploying innovative parametric solutions are close to being signed; further development will be announced for the GRMA, including potential first pathfinder countries; and key milestones will be unveiled in the operational launch of the GRII by its patrons Mark Carney, UN special envoy on Climate Action and Finance; Mami Mizutori, special representative of the United Nations Secretary-General for Disaster Risk Reduction and head of the United Nations Office for Disaster Risk Reduction (UNDDR); and Eric Andersen, president of Aon and advisor to the IDF.

Seven member companies have thus far contributed funds to make the GRMA and the open risk modelling technology it depends upon possible. They are AIG, Aon, AXA, Axis, Renaissance Re, SCOR and Willis Towers Watson. Initial funding from the public sector, provided by BMZ/KfW, is €11 million for an initial four to six climate-vulnerable countries. Iyahen said the IDF is currently on track in its discussions with four priority countries and hopes to make an announcement of the first one at COP27. The IDF’s aim, she added, is to work in 20 countries by 2026 and it is actively seeking the engagement of further donors.

The IDF sees the future of the GRII as a sustainable institution backed by corporate and philanthropic funding, set up for the curation and continuous development of an online risk index service. Its governance will include user groups, particularly from financial institutions and finance standard setters, and technical contributions will come from a wide range of public and private research institutions. The IDF provided seed funding to get the initial demonstrator ready, which will be shown at COP27. Developed by the University of Oxford, it will focus on infrastructure vulnerability in particular, covering at least flood and earthquake, and delivering a set of relative risk scores for use in initial aggregated risk assessments.

On progress with Tripartite Agreement-related projects, Iyahen said industry has already offered, or expects to offer, capacity to the amount of $2.2 billion, of which projects in “implementation mode” account for $530 million. At this stage, about 60 million beneficiaries are expected from these projects. The agreement includes more than 90 experts from 15 re/insurance companies and more than 60 UNDP representatives, including from 17 UNDP country offices. The German government has also committed over €30 million to this effort and the IDF has committed $5 billion in offered capacity and co-investment with BMZ on this programme.

Protection gap

Iyahen has been secretary general of the IDF since 2018. Prior to that she worked with developing countries on the role of insurance in helping them to manage some of the shocks from extreme weather events linked to climate change.

“A lot of my experience is from the developing country context, but also with a clear focus on the issues around adaptation and resilience building. That means helping the insurance industry work with governments and communities to address the huge issue of the protection gap,” she said.

For insurance, a sector “built on risk”, there is an opportunity to play a key role.

“This really is a test for the industry to demonstrate some of the inherent capabilities that exist and a willingness to tackle the challenges of adaptation and resilience,” Iyahen stressed, “because the right protection for people to be able to live the kind of life they deserve is, to me, at the heart of what insurers should be most concerned with.”

The insurance industry’s willingness to help is also about demonstrating its “relevance” in a changing world, she added.

“How can we as an insurance community be relevant in an age where there’s real need on a global scale? Unfortunately in the developing world, insurance is not the number one go-to, so it might require a reimagining of the story of insurance. This is a journey but also a test, and not only for the industry, but also for the public sector and how it values the role of insurance.”

COPs aim for agreement at a governmental level and they have always been a “contentious space”, she said, but COP26 was remarkable for showcasing a deeper engagement with the private sector. Support for such progress from the insurance industry included the UN-convened Net-Zero Asset Owner Alliance that was founded in 2019 by, among others, Allianz and Swiss Re. Its focus is on mitigation—the reduction of greenhouse gases—but COP negotiations have “yet to capture” how the insurance industry can apply its expertise to adaptation and resilience, Iyahen said.

She explained: “Insurers could take a leadership role here, given the relevance of adaptation and resilience to their mandate, but where can we add value? The Tripartite Agreement is precisely focused on taking this beyond a mere statement to working out what we can do to assist developing countries that don’t have the depth of an insurance market that is needed. The agreement also recognises the limitations of the industry and so it is asking, who are the partners that we need in order to find real solutions in a meaningful way?”

Public-private partnerships

UNDP has a mandate to work with governments on this topic and it is an important partner for the IDF in the search for risk financing solutions.

“How can we develop these? What will they look like? Who pays for them?” Iyahen asked.

A remarkable statistic, she said, is that only 2 percent of financing used to support the global response to the COVID-19 pandemic was prearranged.

“It’s a similar magnitude of prearranged financing for disasters caused by extreme weather events and so, we’ve been working hard over the past year with the German government, under its G7 Presidency, to launch a programme against climate risk.”

That programme is the Global Shield recently agreed by the V20 and the G7 which will be launched at COP27. Iyahen said this aims to ensure ex ante financing for disasters.

Asked what individual insurance companies can do to help, she said they have an “inherent value proposition” with their underwriting expertise. The challenge, she added, is knowing how to approach new markets which entails a steep learning curve on public-private partnerships.

“It is about articulating to governments about your role, not simply as suppliers of products, but as risk managers. The IDF is creating channels for this, whereby companies that might be less engaged in some of these communities or markets, can work with other members of the industry to find practical ways to help.”

For example, the IDF’s Sovereign & Humanitarian Solutions working group initially comprised only a handful of companies, including Swiss Re and Munich Re. Now it has 14 firms and 70 members from across the industry working on global projects coordinated by UNDP offices.

“I can only request and hope that there is a sustained level of engagement,” Iyahen said, “because we’re now seeing a response from the public sector to that.”

Likewise, there is the IDF’s Inclusive Insurance working group, which Iyahen said takes a bottom-up approach to market developments.

“This is about how we can support the development of markets so that they can play a meaningful role as a shock absorber when you think about the broader issues that governments in developing countries are challenged with.”

She concluded her remarks by highlighting UNDP’s latest “Human Development Report”, which was released last month. This is an independent and analytically and empirically grounded discussion of major development issues, trends and policies.

The report argues that, for the first time in 32 years, the Human Development Index, which measures a nation’s health, education and standard of living, has declined globally for two years in a row—falling back to its 2016 levels and reversing much of the progress towards the UN’s Sustainable Development Goals.

Iyahen said, “The report paints an alarming picture of the world. Yet, at the same time, it gives us some hope. Included in its recommendations is the role of insurance—including social protection—as one of three key pillars necessary to prepare societies for the ups and downs of an uncertain world. This is unprecedented. It is a challenge and an opportunity that the industry must respond to, in partnership with the public sector.”