A new article by Howden Group Founder and CEO David Howden says $2 billion in privately funded catastrophe insurance capacity can be deployed over the next few years.
Howden wrote on LinkedIn that he believes this additional capacity can be deployed within the next three to five years. In his article, Howden said this extra capacity is part of how the insurance industry can help those already feeling the effects of climate change.
Howden wrote that there were three main steps to doing this: promoting the value of insurance, solving the affordability problem, and building trust with those responding to disasters.
He wrote: “Paying through traditional insurance models can take some time. If a loss occurs, it is evaluated, then the payout is discussed and agreed. But that model doesn’t work for disaster relief. People who have lost everything to fire, flood or tornado cannot wait months for a claims adjuster to tell them whether their claim is covered or not. And they can’t wait any longer for a payout. Parametric insurance overcomes this by offering guaranteed, immediate funds in response to pre-agreed triggers. Too much rain, too much wind, too much heat – all of these can trigger a guaranteed, immediate payment of a pre-agreed amount. This immediacy of funding can enable the critical actions that can prevent a disaster from becoming a crisis in the first few days and weeks.”
On the second point, Howden referred to his speech at COP26 and the launch of the world’s first Volcano Bond. He also referred to this year’s COP27 and the Sustainable Markets Initiative’s Terra Carta Action Forum.
Howden wrote: “I have called on the broader insurance market and financial services sector to divert a percentage of their charitable giving to funds to cover premiums for similar projects. At COP27, I participated in the Sustainable Markets Initiative’s Terra Carta Action Forum. As I scanned the room at the CEOs of some of the world’s largest companies, I began thinking about how we could mobilize private sector support for innovation for good. If the foundations and CSR pots of all the companies in our network pooled just a small part of their funds into one huge pot to fund thousands of projects around the world? That could really weaken that funding gap.”
He added: “People want their employers to do this. We are giving Howden employees the opportunity to donate a portion of their company stock to fund charitable giving and the response has been overwhelming. People want to see that the companies they work for and the foundations that fund those companies are making a positive impact on the world. Businesses use insurance to build resilience and offset volatility within their own organizations. So why not use the same tools to help the communities most vulnerable to climate disasters?”
Howden also pointed to what he called the “funding gap” between the money needed for disaster relief and the amount available. Twenty-two years ago, he wrote, the gap was about $1 billion and grew to $4 billion a decade later.
He wrote: “When I spoke in Glasgow last year it was $20 billion. And today? That gap has grown to over $30 billion.”
There are a number of reasons for this gap, Howden wrote, with climate change “a major contributor.”
He wrote: “This year we have seen the deadliest floods in Pakistan since 2010, the worst floods in 122 years in the Sylhet region of Bangladesh and the longest drought in 40 years in the Horn of Africa. All of this and the many, many more climate change-related disasters are putting a huge strain on humanitarian budgets. In addition, geopolitical and financial crises are driving up costs everywhere. This increases the cost of providing disaster relief and puts pressure on the finances of those providing the funding. Prior to 2018, disaster relief funds were growing at 10% annually. Since 2018 it is [it has been growing by] only 2.6%.”
