‘Risk is the reality of life … India has one of the biggest physical climate risk exposures and protection gap’

Swiss Re group is one of the world’s largest reinsurers. The pandemic turned the spotlight on the nature and scale of risks we confront. Veronica Scotti, chairperson, public sector solutions, Swiss Re, spoke to Surojit Gupta about risk:

India is at risk from several disasters. How can the reinsurance industry help?

India is not alone in facing disasters that maybe it’s not ideally prepared for. So, if we start from the premise that we are all increasingly more at risk because of the way we build, because of the way the economic activities develop, and the choices that we make around protecting ourselves or not, then from there you can drive all sorts of policies and you can drive engagements between the public and the private sector.

But the first step is accepting that we are at risk, and I know that in many cultures talking about the downside and risk is not a positive message. It’s the reality of life. So if we accept that and we understand what the drivers of those risks are and then, I think we can put in place very effective policies.

Specifically, in India, there is a national disaster risk management entity administering the National and State Disaster Relief Funds, but since the country is organised as federal, state and municipalities, action is needed at all levels. That’s why India’s Finance Commission recommended states to set up mitigation funds at local level, and highlighted the importance of pre-event preparedness with ex ante financing and fiscal responsibility. The same applies for instance in the US or in Canada or in other parts of the world where federal and state set-ups exist.

How do various levels of government collaborate with one another?

I find this is one of the biggest weaknesses from a governance standpoint, understanding who ultimately is responsible for what and making sure that there is a cohesive resilience strategy at different authority levels. I think the reinsurance industry has a number of extremely important levers.

Recognising that the industry can offer support with the risk is half the battle. Then informed decision-making within a framework that is coordinated across all levels of government is what it means to have a sustainable economy.

The questions to be answered include: How do we take away the risk out of the system? How do we transfer it? How do we adapt? India has one of the biggest physical climate risk exposures in the world and one of the largest protection gaps in the world. Anything that can be done in coordination with governments to address these two issues while developing the economy to the $5 trillion vision will just put the country on a much safer path of developing with fewer shocks.

What is the difference in the approach of emerging and developed economies?

You’d be surprised. Actually, the divide is not between emerging economies and advanced economies because there are a lot of advanced economies who are very backwards in their country risk management policies. They still haven’t internalised what it takes. Mexico is a middle market. Mexico has in its Constitution the need to put aside a small percentage of the GDP for risk management activities. They had disasters of various types and so they know that every time a disaster strikes their GDP is taken back by a few percentage points. So the average, for instance, of a national catastrophe impacts for OECD countries, I think it’s 13%.

And when you look at Asia, we’re looking at a 33% GDP loss by 2050, this is our projection. If we continue as is and we don’t make adaptation and adjustments, these economies are going to be shocked in very deep ways. The Global South is more affected than the North. But it isn’t about the developing and developed market, rather those that have recognised the issue. We have to earmark sufficient funds for timely interventions because it’s not just a matter of compensating and cleaning up after a disaster, but it’s very much how fast you can do it. If you look at Covid, of course we all care to preserve lives, but we all know that even in the extreme effort to save lives, we’ve really struggled with livelihood.

What is the size of the opportunity that you’re talking about?

Swiss Re’s Asia Mortality Protection Gap research estimates Indians are facing the most severe protection gap with 83% of their protection needs unmet, surmounting to 14.5 times of the average annual household income. Adding to this alarming concern, 72% of households in India underestimate their protection gaps, potentially exposing surviving family members to livelihood disruptions should the main breadwinner(s) pass away.

So for me, a government policy that looks specifically at how do we protect people better, how do we have more inclusive coverage through social programmes is fundamental.



Views expressed above are the author’s own.


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