Select Committee on International Development Appendices to the Minutes of Evidence


Memorandum submitted by Professor David Crichton


    —  Insurance could help to protect investment in infrastructure and so encourage donor countries to contribute to development.

    —  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 economy.

    —  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 companies.

    —  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 areas.

  The insurance industry can assist with data and premium incentives.


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 . . ."

  No comments.

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 continuing insurance.

  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 (Crichton, 1999b).

  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[5].

  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 climate change"

  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.


  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 sections on:

    —  Contraction and Convergence,

    —  the UN International Strategic Disaster Reduction Initiative,

    —  the UK's Advisory Committee on Natural Disaster Reduction[6],

    —  the DFID supported "Livelihoods Initiative"

    —  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[7].


  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

February 2002


Crichton, 1999a

  David Crichton, "The Risk Triangle" published in "Natural Disaster Management" Editor Jon Ingleton, Tudor Rose, London, 1999, ISBN 0 9536140 0 X.

Crichton, 1999b

  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.

Crichton, 2001a

  David Crichton, "The Implications of Climate Change for the Insurance Industry" Building Research Establishment, Watford, November 2001. ISBN 1-903852-00-5.

Crichton, 2001b

  David Crichton, quoted in "The Economist", London, 17 November 2001, p 34.

Davis, 2002

  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 Kilbride, 1998.

Munich Re, 2000

  "Topics 2000". Published January 2000.

Retallack, 2001

  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 Association (CIRIA)

  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 Reduction (UNISDR).

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

6   Of which the author is a member. Back

7   The author is also a member of the UK Research Councils' Earth Observation Expert Group and the DTI's Earth Observation Programme Board. Back

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