This document discusses adapting to climate change in wildfire management. It notes that 70% of economic losses from natural disasters over the past decade were uninsured, creating a large protection gap. Insurance can help governments increase financial resilience by providing funds for emergency response, reconstruction, and supporting uninsured households after disasters. Parametric insurance in particular provides fast payouts based on an index or trigger without a claims assessment process, making it an affordable option. However, changes in disaster frequency and severity due to climate change make risk assessment challenging.

1. Adapting to a changing climate in
the management of wildfires
Gerry Lemcke PhD, Head Product Management,
Public Sector Solutions,
Swiss Re
2020

2. By the year 2020, Swiss Re
commits to have advised
50 sovereigns and sub-
sovereigns on climate risk
resilience and to have offered
them protection of
USD 10bn against this risk.
Swiss Re CEO, Michel Liès, UN Climate Summit,
23 September 2014
OUR VISION:
We make the world
more resilient

3. -
50
100
150
200
250
300
350
400
450
500
of economic losses caused by
natural catastrophes over the
past decade were
uninsured70%
Insured vs uninsured losses
1970-2018, in USD billion at 2018 prices
Source: Swiss Re Institute
The protection gap is massive and growing

4. Public sector bears a large portion of the risks
Public budgets are put under twofold strain
Closing the financing gap between insured and uninsured losses
is thus in the public sector’s vital interest
Emergency response costs
Reconstruction of public property & infrastructure
Support for non-insured households
Cost of replacements (e.g. higher imports)
Higher costs
Lower revenues
Lower tax income
Lower tourism income
Lower export revenues
Loss of investor confidence
IMPACT ON PUBLIC BUDGETS:
Public sector

5. Tools exist for governments to increase financial resilience
Insurance is a crucial tool to protect public budgets

6. Insurance is not investment*
Investment
Investorprovides capital
pays interest
Investor provides capital for
immediate use in
exchange for interest payment
Insurance
Government
promise the pay claims in the future
pays premium Insurer provides promise to
provide capital for future
use in exchange for premium
payment
Insurer
Government
* Insurance companies however do make investments

7. While there is
no individual
payback
obligation in
insurance, over
all insured the
cost needs to
cover the long
term expected
loss cost
Frequency of Payout times Amount of Payout
=
Expected Loss
$$$
$

8. ~5 ~10 ~15
Out of pocket
Contingent
financing
Reserve funds
Insurance/
Reinsurance
Insurance is
most effective
to cover severe,
sudden and
accidental
events outside
otherwise
available
financial means
Loss
Loss return period
Return period [years]
>15-1000

9. In a parametric
product, the payout
depends on an index
and removes the
need for loss
adjustment

10. FAST
access to cash
AFFORDABLE
no claims
assessment process
low limits
FLEXIBLE
usage of cash
Parametric insurance
complements
traditional insurance
• Parametric insurance
makes sense for those
who can’t afford or
access traditional
insurance
• Parametric insurance
makes sense as a
complement to
traditional insurance
• Parametric insurance does
not make sense as a
substitute for traditional
insurance

11. Parametric solutions are a proven tool ….
Uruguay
Energy production
shortfalls due to drought
Guatemala
Nat cat business
interruption risk
Caribbean
Hurricane, earthquake
and excess rainfall risk
Pacific Alliance
(CHL, COL, MEX, PER)
Earthquake risk
United States
Flood risk
Mexico
Earthquake/hurricane
and livestock risk
California/Utah
Earthquake risk
Louisiana
Hurricane risk
Turkey
Earthquake pool
Bangladesh
Flood insurance
United Kingdom
Flood risk
Florida
Hurricane risk
India
Weather insurance
for farmers
African Risk Capacity
Government drought
insurance pool
Thailand
Crop
insurance
Kenya
Livestock
insurance
Pacific Islands
Earthquake and
tropical cyclone risk
Philippines
Earthquake and
tropical cyclone risk
Guangdong
Typhoon/rainfall
Beijing
Agricultural risk
Vietnam
Agriculture yield cover
Heilongjiang
Multiperil disaster risk
IDA countries
Pandemic outbreak
Egypt
Hospital cash

12. Quick loss assessment exists to power
parametric insurance products
Images and data in collaboration with VanderSat, https://www.vandersat.com/ Images and data in collaboration with VanderSat, https://www.vandersat.com/

13. … the challenge comes with
the risk assessment !
Changes in
frequencyand severity…
…. are currently seen as mostly outside robust
modelling capabilities

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