Willis - Executive Director.

1. CLIMATE RISK AND
EXTREME WEATHER:
INSURING RESILIENCE
FMP Conference
Gregory Lowe Executive Director Capital, Science, and Policy Practice

2. Climate change or socioeconomic change?
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Miami Beach 1920
Miami Beach 2014

3. Both, but growing exposure has dominated to date
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4. What to Do?
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Climate Change
Policy
Regulation
Construction &
Building
Restrictions
Long Term
Prevention
Enhanced
Urban Planning
Higher
Construction
Standards
Long Term View
for City
Planning
Resilience
Quantification
Risk Pooling
Structured
Solutions &
Alternative Risk
Transfer
Risk Transfer

5. Exposure: not well understood in the wider financial
sector
Location Analytics : Exposure
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Representation of Exposure - Dependent upon numerous factors
 The insurance industry has built resilience through science and analytics
 Representation of Exposure - Dependent upon numerous factors
 Quality of location information : partial , non addressable, policy address
 Translation of location to geographic location : fine or coarse resolution
 Location type : fixed or temporal
 Risk Type : urban , commercial , agricultural ?
Assigned
75%
Assigned
5%
Assigned
25%
Coarse = Postcode/CityFine = Address Disaggregation = exposure to
representative areas of high exposure

6. Vulnerability: the construction techniques determine
resilience
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7. It’s not just about current exposure
• Insurance pricing is based on current exposure
• Banks, rating-agencies, financial regulators are increasingly interested in changing risk
exposure and VaR of extreme events.
• Data and analytics can look at future exposure using scenario analysis
• Transparent data should lead to better investment decisions
Finance is often tied to the availability of insurance
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8. Financial regulators are increasingly aware that
extreme weather risk is not transparent to investors
• The 1-in-100 initiative is supported by the World Economic Forum, UN, World Bank,
International Association of Insurance Supervisors, and Standard and Poors.
• The initiative aims to incorporate insurance techniques for understanding financial exposure to
extreme weather into financial reporting.
• Organisations issuing debt or equity would disclosure their financial exposure to natural
disasters on for a 1-in-100 (solvency event), 1-in-20 (earnings event), and 1-in-5 (average
annual loss) return period in their annual reports or bond prospectus.
• Reporting would capture exposure at a specific point in time and would be annual.
• Longer-term scenarios considering climate risk can help organisations and investors consider
how these might change.
• Willis has provided key thought leadership and strategy development on this initiative.
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9. A variety of players in this sector are affected in the
‘real-estate supply-chain’
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Real Estate
Brokerage
and
Services
Real Estate
Directors
Real Estate
Investment
Trusts
Investment
Consultants
Insurance
Investments
Banks
Stock
Exchanges
Pensions
Corporates
Facilities
Management
Property
Consulting
Corporates
Residential
Architects and
Engineering
Construction
Insurance
Banks

10. At a city-level, there is growing interest in the role
insurance can play in building climate resilience
• There is a surplus of capital in the insurance sector
right now.
• Insurance penetration is low in some overseas
markets.
• Commitment from the industry to increase climate
smart investment 10 times by 2020.
• Risk pools have been applied to a variety of hazards:
• Terrorism (PoolRe- UK)
• Seismic and Tropical Cyclones (CCRIF – Caribbean)
• Drought (African Risk Capacity)
• Flood (FloodRe – UK)
• These can be financed through a variety of sources.
• Urban resilience is enhanced benefiting all
stakeholders.
Risk pooling can help cities quickly recover from disasters
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11. Example: Private Urban Institutions Can Come
Together to Pool and Protect Risks
• Manila Automotive Loans – Loss Exposures
• Excluding Natural Disasters – 0.5% Non Performing Loan Ratio
• Natural Disasters – 6 – 10%
• Two Sources of Loss
• Default of Individual Insurers
• Default of Small Insurance Companies
• Several Banks in Manila have come to Willis to analyse
a Pooling Solution where in the event of a Windstorm,
the banks would receive a pay out whether if they did
or did not suffer a loss
• Rationale:
• Extra Pool of Capital to backstop against massive losses at Banks
• Resilience Fund to protect consumers and small insurance
companies
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A. B. C.

12. The Role of Insurance
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Role of Insurance In a Global Economy
Traditional Role of Insurance
Recovery Against
Actual Loss
Protection Against
Actual Losses
Premium / Policy
Source: “Insurance Regulation for Sustainable Development” University of Cambridge

13. The assets you’re building now will be around for many years
and will face a different climate and regulatory environment
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