Marsh, a global insurance broking and risk management firm, and the World Economic Forum, an international organisation focused on public-private cooperation, are calling for greater investment in place-based resilience to support insurance and reinsurance availability and affordability as climate-related losses increase.
According to Marsh and the World Economic Forum, insurance and reinsurance markets are increasingly being affected by the scale and frequency of natural catastrophe losses. The organisations argue that improving resilience at a place level could help address some of the underlying risks that influence whether assets and communities remain insurable.
The playbook, Addressing Insurability: A Playbook for Investing in Place-Based Resilience, says that conventional approaches often focus on protecting individual buildings or assets, while many of the risks affecting insurers and reinsurers extend beyond a single property. Infrastructure, supply chains, utilities and surrounding communities can all influence the level of exposure faced by an insured asset, according to the report.
Marsh and the World Economic Forum say this creates a collective-action challenge because no single stakeholder necessarily has the incentive or resources to address risks across an entire location. The report therefore focuses on approaches intended to improve risk information, develop new ways of financing resilience, establish recognised measures for resilience and align incentives between different stakeholders.
For the reinsurance market, the report’s focus on better understanding and reducing aggregated risk is particularly relevant. Marsh and the World Economic Forum note that risk can accumulate across multiple assets and businesses in the same geographical area, while disruption to infrastructure or supply chains can generate losses beyond direct physical damage. The playbook argues that a broader understanding of these dependencies is needed when considering resilience and insurability.
The organisations also distinguish between asset-level resilience and place-based resilience. While measures taken by individual property owners can reduce losses, the report says the resilience of an asset can also depend on the wider area in which it operates. This can have implications for the ability of insurers and reinsurers to assess, price and transfer risk, particularly where multiple exposures are affected by the same event.
Marsh and the World Economic Forum say insurance cannot substitute for reducing underlying risk. Instead, they argue that insurance and reinsurance should form part of a wider approach involving governments, businesses, investors and communities. The report describes insurability concerns as an indication that existing approaches to risk management may not be sufficient on their own.
Amy Barnes, Head of Climate and Sustainability Strategy and Global Head of Energy & Power, Marsh Risk, commented: “This playbook is a call to action. We know that place-based resilience works. What we need is for place-based interventions to be tested, scaled, and owned by coalitions. Insurability concerns are a signal that our risk management is insufficient. By working together across government, business, investors, and communities, we can address the collective-action challenge and build resilience that protects not just individual properties, but entire places and economies.”
The report includes examples intended to illustrate how resilience investment could influence risk. In a case study in Paradise, California, modelling undertaken by The Nature Conservancy and Marsh Re found that green buffers could reduce modelled losses by 27%, while combining those measures with building codes produced a modelled reduction of around 42%. Marsh and the World Economic Forum note that such modelling does not by itself establish how insurance outcomes would change.
It also examines the role of data in supporting risk transfer. Marsh and the World Economic Forum highlight an Irish flood-risk data platform as an example of how information on exposure and risk can be brought together to support decision-making. The report argues that more consistent and accessible risk information can help different stakeholders assess vulnerabilities and identify potential resilience measures.
Another case study considers data centres, where the organisations say business interruption can exceed direct physical losses. The example illustrates the wider dependencies that can influence the risk faced by individual assets, including infrastructure and other services on which operations rely.
Marsh and the World Economic Forum say investment in resilience can face difficulties because the benefits may accrue to a range of stakeholders, while the organisation paying for the intervention may not receive all of the resulting financial benefits. The report therefore considers mechanisms including resilience districts, private capital and risk-pooling arrangements as potential ways of bringing additional funding into resilience projects.
The organisations also examine insurance facilities designed to pool risk. Their discussion of the Urban Infrastructure Insurance Facility, for example, considers how risk-pooling structures can support infrastructure investment in Latin America and the Caribbean. The playbook presents such mechanisms as part of a broader set of approaches to financing and transferring risk.
Eric White, Head of Climate Resilience at the World Economic Forum, commented: “Recent weather disasters have given many businesses and governments a wake-up call. We need to act more aggressively to build resilience. This playbook shows us how.”
Marsh and the World Economic Forum conclude that improving insurability will require action beyond the traditional insurance market.
The report positions resilience investment, improved risk data, financing mechanisms and collaboration between public and private stakeholders as complementary measures that could help address risks affecting insurance and reinsurance markets, while supporting the resilience of the wider economies and communities exposed to natural hazards.
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