Memorandum submitted by Professor David
1. GENERAL POINTS
Insurance could help to protect investment
in infrastructure and so encourage donor countries to contribute
The insurance industry has considerable
expertise in risk management. This could reduce vulnerability
and exposure to risk.
Insurers have access to global reserves
of capital through reinsurance so that the costs of a disaster
in one country can efficiently be spread throughout the global
The prompt payment of claims could
speed up socio economic recovery, and promote resilient reinstatement
to reduce future vulnerability.
Insurers are interested in the potential
market from developing countries, but this is considered high
risk in countries that do not have political stability. There
are also issues of whether the people in those countries would
be prepared to spend money on such an intangible service. Insurance
could only work in partnership with the donor country, the relevant
governments, and the relief agencies.
Globally, the insurance industry
is three times bigger than the fossil fuel industry and its investment
managers control 30 per cent of the world's stocks and shares.
In the UK, the Association of British Insurers (ABI) published
guidelines in October 2001 for socially responsible investment
to apply to all companies in which UK insurers may wish to invest.
Such considerations can, and do influence the actions of multinational
The United Nations International
Strategy for Disaster Reduction (UN-ISDR) initiative and the UNEP
Financial Services Initiative (UNEP-FI) could be the catalysts
for setting up insurance and financial partnerships in developing
countries. UK insurers are active in the UK Advisory Committee
for Natural Disaster Reduction (the focal point for communication
with UN-ISDR) and in UNEP-FI (Crichton, 2001a). It would be perhaps
beneficial if DFID were to consider a closer dialogue with these
bodies (the author would be happy to facilitate this).
This concept seems to mean different things
to different people when it comes down to practical issues. In
particular the question of resilient construction is often ignored.
Climate change will bring many threats to structures and buildings
(Garvin et al, 1998). "Building Green" is a non-structural
solution to the problems of climate change and four ways to build
green are outlined below:
Reduce greenhouse gas emissions.
Sequester carbon dioxide.
Reduce vulnerability to storm, flood
and other damage.
Reduce exposure by building in safer
The insurance industry can assist with data
and premium incentives.
3. BRIEFING NOTE
3.1 "The potential impact of global climate
change on development and developing countries and especially
on poor people in those countries"
Increased risk from an increase in extreme weather
events, combined with sea level rise and gradual changes in precipitation
and temperature levels, could jeopardise a country's ability to
borrow money for development purposes. However it is not just
the increasing hazard that must be taken into account. Exposure
and vulnerability are increasing too.
The growth in losses, both insurance and economic,
needs firm action (Munich Re 2000, and figure 1 in appendix).
If this growth continues at this rate it has been estimated that
by 2065, losses from natural catastrophes will exceed the total
GNPs of every country in the world, even before taking into account
the implications of climate change (Retallack, 2001). Around the
world, buildings are more vulnerable and more exposed than ever
before, as people use lighter building materials and more are
forced to live in hazardous areas such as near the coast or on
floodplains. Climate change is bringing record weather conditions
around the world (Crichton, 2001a) and the projections indicate
that hazards will be increasing dramatically in the future.
The Risk Triangle (Crichton 1999, and figure
2 in the appendix) can be used as a framework to help address
the three components of risk: hazard, vulnerability and exposure.
3.2 ". . .the effect that these countries'
policies for Sustainable Development will have on the environment
and global climate change"
The European Commission and 36 other countries
signed the Aarhus Convention in June 1998. It establishes the
right of all citizens to live in a healthy environment, and is
the first ever convention to safeguard citizens' access to information
and public participation and access to justice in environmental
matters. Insurers need access to such information too, and conformity
with the Aarhus Convention, or its equivalent, is a pre requisite
for insurance cover.
3.3 "The potential offered by donor programmes
. . ."
3.4 ". . .the need for private investment
that is both environmentally sustainable and links with the wider
aim of poverty elimination"
Private investment, for example in infrastructure,
would be more likely if adequate insurance cover is available.
It is ironic that the World Bank will make sure that a construction
company will have insurance during construction, but when the
bridge, or road is finished and handed over, there is often no
Of course in some areas, insurance is not currently
feasible, for example Goma, hit by the recent Nyiragongo volcanic
eruption. Would it be wise for an insurer to offer cover for a
city which has an economy founded on aid, smuggling, and arms
dealing, with no warning or evacuation system in place? Such a
city is unlikely to make an attractive market for the insurance
industry. Economic and political stability, plus compliance with
the Harare Declaration are crucial.
Given a stable political situation, and a co-operative
government, insurers could offer premium incentives for risk reduction
measures, they could reinstate damaged buildings in a more resilient
way, and they could give risk management advice. They can spread
the risk beyond the national economy to the global economy, and
assist recovery with not only money, but also expertise.
In the Caribbean, a UK insurer (Royal &
Sun Alliance) set up a programme with the Red Cross to provide
disaster preparedness training to staff in hotels they insured.
If the hotel participated, they received a premium discount. Another
insurer in the Caribbean offered discounts to policyholders with
hurricane resistant homes, and financed handbooks on the subject
for builders (Davis, 2002).
There are interesting examples from developed
countries too. In New South Wales in Australia, the banks specify
the building standards needed to enable someone to obtain a mortgage.
In Florida, insurers have assisted with the enforcement of building
codes and the training of inspectors (Crichton, 2001a). In Scotland,
insurers specify what levels of flood hazard are acceptable to
insurers, and local planners now ensure that they do not allow
new homes in areas where the hazard is higher than the "insurance
template" unless effective flood control measures are introduced
Such moves are possible because of a partnership
between insurers and government (or local government). For example,
the insurance template, which operates so successfully in Scotland,
does not apply in England, where the partnership is less strong,
and houses are increasingly being built in flood hazard areas,
against the advice of the Environment Agency.
Therefore the first stage of working with the
insurance industry is to build up a dialogue and trust between
donors, receiving governments, the relief agencies on the one
hand and insurers and reinsurers on the other hand. This can hopefully
lead to partnership solutions, and the Commonwealth Disaster Management
Agency is a good start.
3.5 "DFID's policies, strategies and
programmes on environmental sustainability and especially global
DFID should adopt the principle of "Contraction
and Convergence" as set out by the Global Commons Institute.
This seems to be the "only game in town" at the moment
to which all countries are likely to be able to agree. It is a
UK initiative which has been welcomed by developing nations around
the world, as well as by the EC and Rt Hon. Michael Meacher MP.
4. DFID PUBLICATION:
ENVIRONMENT." (DFID, LONDON,
It is disappointing that the potential importance
of the role of insurance is given no prominence in this document.
There is no mention of the UNEP Finance Initiative, which was
well under way by 2000.
Annex 2 contains details of a number of international
environmental agreements, but the Harare Declaration and Aarhus
Convention are conspicuously absent. It seems to the writer that
without these or their equivalents, all the other agreements are
just pieces of paper.
If the publication is revised, it should include
Contraction and Convergence,
the UN International Strategic Disaster
the UK's Advisory Committee on Natural
the DFID supported "Livelihoods
the work being carried out at The
International Institute for Applied Systems Analysis (IIASA),
funded by the DTI and the UK insurance industry, to investigate
ways to provide cover to developing countries (in press).
It would have been good to see a section on
the increasingly important role of Earth Observation (EO) in helping
to protect the environment and in disaster reduction and relief.
If an updated version of the publication is produced, one would
hope to see mention of important earth observation initiatives
such as the EU's "Global Monitoring For Environment And Security"
(GMES) programme, "GIFTSS", "NEDIES", the
UN "Earthwatch" programme, or the work of the CEOS,
especially the "IGOS" initiative. These initiatives
are all co-funded by UK Government, one way or another, and the
author would be happy to provide more information.
1. Closer relationship between insurers,
academics, and government, to share data, research, and expertise.
2. Aim for a pro-active instead of purely
reactive approach to spread a culture of prevention and preparedness
through making resilience an essential part of sustainability.
3. Ensure development work does not increase
vulnerability or exposure to natural hazards.
4. Recognise the role that could be played
by the insurance industry through UNEP-FI and UN-ISDR, in influencing
behaviour through premium incentives, and spreading the costs
of disasters onto the global economy through reinsurance.
5. Use insurance industry data to assist
with reducing vulnerability.
6. Promote Contraction and Convergence as
a long term solution to climate change issues.
Professor David Crichton
Chartered Insurance Practitioner,
Visiting Professor at Benfield Greig Hazard Research
Centre, and Middlesex University Flood Hazard Research Centre,
and Research Fellow at the University of Dundee
David Crichton, "The Risk Triangle"
published in "Natural Disaster Management" Editor
Jon Ingleton, Tudor Rose, London, 1999, ISBN 0 9536140 0 X.
David Crichton, "Flood Appraisal Groups,
NPPG 7, and Insurance" Paper presented at a seminar entitled
"Flood Issues in Scotland", Dec. 1998, organised by
SEPA and CoSLA, SEPA, Stirling, 1999.
David Crichton, "The Implications of
Climate Change for the Insurance Industry" Building Research
Establishment, Watford, November 2001. ISBN 1-903852-00-5.
David Crichton, quoted in "The Economist",
London, 17 November 2001, p 34.
Prof Ian Davis, Cranfield Disaster Management
Centre, "Earthquake Mitigation" in press, 2002.
Garvin et al, 1998
S L Garvin, M C Phillipson, C H Sanders, C S
Hayles, and G T Dow "Impact of climate change on building",
(ISBN 1 86081 237 6) Building Research Establishment, East
Munich Re, 2000
"Topics 2000". Published January
Simon Retallack, Managing Editor "The
Ecologist" "We've saved Kyoto (shame about the world's
climate)" Ecologist Report, London, November 2001 pp18-22.
Association of British Insurers (ABI)
ABI Guidelines on Socially Responsible Investment
Building Research Establishment (BRE)
British National Space Centre (BNSC) includes
information on GIFTSS
Commonwealth Disaster Management Agency
Construction Industry Research and Information
Earthwatch initiative (UN)
Global Commons Institute (Contains details of
Contraction and Convergence.)
Global Monitoring For Environment And Security
Livelihoods and disaster reduction
Munich Reinsurance (Publishes a great deal of
useful information and statistics.)
Natural and Environmental Disaster Information
Exchange System (NEDIES)
UNEP Finance Initiative and The Insurance Industry
Initiative for the Environment
United Nations International Strategy for Disaster
5 This is important, because in 2001, the insurance
industry announced that in Britain it might no longer be able
to guarantee to continue to provide cheap flood insurance for
houses in flood hazard areas after 2002. Insurers had provided
such a guarantee since 1961, and in some ways are to blame for
the amount of housing which has been built in floodplains since
then, because the presence of insurance has enabled people to
get mortgages (Crichton, 2001b). Back
Of which the author is a member. Back
The author is also a member of the UK Research Councils' Earth
Observation Expert Group and the DTI's Earth Observation Programme