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Insurance growth may yield more resilient infrastructure: World Bank official

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MONACO, Monte Carlo — Fledgling efforts by intergovernmental organizations and the insurance sector to bridge the vast gap between insured and uninsured catastrophe losses worldwide have the potential to create more resilient infrastructure and mitigate risks, a senior World Bank Group official said.

While many of the efforts to encourage insurance in the developing world have concentrated on microinsurance, Joaquim Levy, managing director and chief financial officer of the World Bank Group in Washington, said larger government projects could also benefit.

“The insurance sector can have a tremendous impact in discussions about infrastructure, especially climate-resilient infrastructure. You can look at both sides of the balance sheet and help create safe structures,” he said during a panel discussion at the Rendez-Vous de Septembre reinsurance meeting in Monte Carlo, Monaco, on Tuesday. “When you have insurance, you really align incentives for the reduction of risk in a very effective way.”

The World Bank partnered with the UN Development Program and the insurance industry to establish the Insurance Development Forum last year to work with governments of developing countries to extend the reach of insurance.

Promoting the use of insurance could have widespread benefits, said Stephen Catlin, special adviser of the CEO of XL Group Ltd., which does business as XL Catlin, and chairman of the IDF. “If the economic loss has a higher percentage of insureds, the economic recovery is quicker, the human depravation is lower and the cost to the taxpayer is lower. What’s not to like about that?”

And the recent losses from floods caused by Hurricane Harvey in Texas, many of which are uninsured, shows the underinsurance is not just a problem for the developing world, he said.

But to grow the uptake of insurance, insurers and reinsurers need to work with country and city governments, said Rowan Douglas, CEO of the capital science and policy practice at Willis Towers Watson P.L.C. in London and chairman of the IDF’s implementation committee.

“Insurance demand is fundamentally shaped by public policy, politics and regulation,” he said.

Mr. Douglas said one recent example of a successful initiative to increase insurance structures to cover catastrophes is CCRIF SPC, which was founded in 2007 as the Caribbean Catastrophe Risk Insurance Facility and was funded with support from the World Bank, several developed countries and fees charged to member governments.

Last week, CCRIF announced it will pay approximately $15.6 million in total to Antigua & Barbuda, Anguilla and St. Kitts & Nevis as a result of Hurricane Irma.

“I think we are at an absolute inflection point around the role of insurance and its scale of use within the humanitarian system. At the moment, on average every year the humanitarian system, which is basically funded by donor agencies of OECD countries, is spending billions of dollars a year on usually post-event response to natural disasters,” Mr. Douglas said.

With the success of CCRIF and other similar projects, the capital that could be accessed from the develop world’s insurance industry should grow significantly, he said.

Catastrophe modeling techniques can also help spur the growth of insurance, said Ian Branagan, senior vice president and group chief risk officer at RenaissanceRe Holdings Ltd. in Bermuda.

The models used by insurers and reinsurers are not limited to assessing exposures to property damage, he said.

“Whether it be damages to buildings, livelihoods, businesses or personal safety, the tools that we’ve developed as an industry over the last 20 to 25 years or so can be used to provide information,” he said.

“The inputs and outputs can become a common vernacular to be used by everybody in the chain” such as planners, governments, first responders or the insurance industry, Mr. Branagan said.

“The absence of that vernacular in the developing world is a key issue in the inertia or slower progress than we might like in developing resiliency and disaster response,” he said.