The insurance industry needs to ‘transform’ its approach to ‘protecting the most vulnerable against the devastating effects of climate change’, says top boss

Vulnerable countries in the global South are not “uninsurable” – the actual “problem” is that “there has been nobody to pay the premium at the scale required”, said Howden Group chief executive David Howden.

Speaking at this week’s United Nations Climate Change Conference (COP28) in Dubai, Howden highlighted potential routes for the private sector to protect vulnreable countries against the effects of climate change.

He explained that a private sector shift was required to understand risks to an entire economy of an unfilled insurance gap, rather than only focusing on protecting assets.

“Usually insurance protects the asset – the hotel, the home, the manufacturing plant. But what good is that if there are no schools, no healthcare and no ports to get products out?” asked Howden in his loss and damage-themed keynote speech today (4 December 2023).

Howden’s latest statement follows the firm publishing a new report in collaboration with the University of Cambridge last month (22 November 2023), which showed that small countries across the Pacific, Caribbean and Indian Ocean currently face losses of between 50% and over 100% of annual gross domestic product (GDP) from natural disasters.

And by 2050, climate change is expected to further increase those losses by between 10% and 15% – equating to a 0.5% rise per year.

The report, put together with the University of Cambridge, also found that by understanding a risk to an entire economy, it could be calculated what would be needed to put in place a contractual guarantee to pre-agreed finance. 

Howden explained: ”This provides both the funding needed to to respond to a disaster and the certainty that these economies aren’t going to be wiped out.” 

To address the insurance gap, Howden said his firm had “worked out how we can cap the loss at 10% of their GDP” and “for less” than expected.

The global broking giant suggested, for example, that $1bn – which equates to less than 1% of the targeted $100bn (£79.4bn) loss and damage (L&D) fund – can secure around $75bn (£60bn) of protection.

And by capping the loss at 10% of GDP, in addition to guaranteeing pre-agreed funding that is paid immediately, Howden said the firm’s loss and damage fund “provides certainty and the confidence to invest”.

“We’ve demonstrated how this could be scaled to protect all 100 [loss and damage] recipient countries from their highest priority risks,” said Howden.

“This is the most economically powerful way to use donor money. It is entirely non-political and provides guaranteed funds that don’t rely on a disaster getting enough media attention.”

‘Crucial mechanism’

Considering a case where pre-agreed funding to protect against natural disaster losses was still in limbo, Howden highlighted that, as of a panel discussion “the other day”, Pakistan was still yet to receive $9bn (£7.14bn) worth of funding to help it recover from floods that struck the country three months earlier.

The pledges were made by international donors at the International Conference on Climate Resilient Pakistan in Geneva, Switzerland – hosted by Pakistan’s prime minister Muhammad Shehbaz Sharif and UN secretary general António Guterres on 9 January 2023.

“How much more efficient would it have been if it had been contractually guaranteed by pre-agreed finance?” said Howden.

“We know that one dollar before a disaster achieves the same impact as around six dollars after the event.”

For the new risk approach to come into fruition, Howden said that “we want to work with climate vulnerable countries to build this into a reality”.

He added that “we want the private sector to get behind this as crucial mechanism to have in place to make these countries more investable” and, “to get this off the ground,” support was needed from donor countries.

“The poorest and most vulnerable have no safety net. For billions of people, if their home or land is wiped out that means nowhere to live and no income,” said Howden.

“Pre-arranged finance not only provides the opportunity to rebuild after a disaster has happened. By reducing vulnerability, it also provides families, communities, governments and investors with the confidence to invest in the future.

“If we do this now, we can transform the way we think about preparing and protecting the most vulnerable against the devastating effects of climate change and give everyone a chance to build a more resilient future.”

  • Insurance Times has converted dollar amounts into pounds using an exchange rate of $1.26 = £1, which was correct as of 1 December 2023.