Catalyzing insurance sector action to protect communities from extreme heat
Advancing the insurance sector’s core risk management capabilities will help nations, regions, and communities address the growing physical risks of climate change and extreme heat.
Tue, Nov 15, 2022
The role of the insurance sector
Insurance was invented to share and reduce risk. Indeed, the father of American Insurance, Benjamin Franklin, started the first American insurance company in Philadelphia to protect the growing community from fire-related losses. He worked to reduce the likelihood of catastrophic fires, but he also recognized that some fires could not be prevented, and so formed a social safety net through insurance. From maritime insurance in London to insurance in America, the story of insurance is a story of collective duties to one another. By protecting each other through mutual security and risk sharing, individuals have the confidence to invest and to grow.
The current global approach to resolving climate disasters involves funneling resources towards disaster response as opposed to targeted prevention, which would save money and lives. Every dollar invested in pre-event risk reduction saves between $6 and $11, and yet 88 percent of today’s disaster management funds from humanitarian, development and government sources are allocated to post-event response. The insurance sector and the public sector share a strategic imperative to reduce climate risk exposures. Catalyzing the insurance sector’s core risk management capabilities will help nations, regions, and communities address the growing physical risks of climate change and heat.
Insurance is ultimately about offering people protection when they need it. It is a powerful financial tool that can be used to raise awareness and ambitions: aligning on and developing financing for the protection gap, utilizing the pipeline of scalable initiatives and innovation, and quantifying climate risks and using them as benchmarks rather than counterfactuals, including to advance development. Fully leveraging insurance as an approach opens the door to greater protection from heat and other climate hazards.
The Insurance Sector Mobilization Campaign
In the spirit of this step-change in global ambition for climate resilience, Arsht Rock has identified the importance of the global insurance industry in preparing our cities for a hotter, more volatile planet. Insurance as an approach, within an ecosystem, can reduce risk and protect the most vulnerable. At COP 27, Arsht-Rock, Marsh McLennan, and the UN Climate Change High-Level Champions launched the Insurance Sector Mobilization Campaign to mobilize and scale insurance sector capabilities that advance climate adaptation strategies in cities, with a specific focus on heat.
As part of this campaign, one of the 2030 Adaptation Outcome targets of the COP27 Presidency’s Sharm El-Sheikh Adaptation Agenda, we will showcase 17 pioneer projects and the value of investments that are currently projected for them, including Arsht-Rock’s Parametric Based Capital Stack pilots under consideration for Santiago, Miami and Athens.
Together, we will work to mobilize the insurance sector to multiply their investments in adaptation while championing innovative disaster risk reduction initiatives that move communities from reliance on recovery to a focus on resilience by 2030.
