TIME TO ACT ON OCEAN RISK
Mike McGavick, Chief Executive Officer, XL Group
Scientists tell us that the ocean is being transformed by emerging and intensifying climate threats at a rate faster than anything it has experienced in 65 million years. As one can imagine, with such accelerant change, the results could be transformational from multiple perspectives – including a broad new category of related risk.
Being in the natural catastrophe business, insurers and reinsurers know well the impact of storm surges and severe hurricanes. And we are paying close attention to less obvious threats such as mass coral bleaching, sea-borne viruses and migrating fish stocks. Most of these events will have expected impacts for the near to long term. But what is not predetermined is how we respond and prepare ourselves.
The ocean sustains us all and is host to a huge and growing “blue economy”. Of course the importance of the ocean goes beyond economics and while the most obvious threats are to coastal and small island communities and infrastructure, the impacts of profound changes in the ocean reach hundreds of miles inland. There is an urgent need for response to the new realities of ocean risk and the insurance industry has a vital role to play. And to do our part, building on the company’s long history of engagement on ocean challenges, and support for marine research and expeditions, XL Catlin intends to be on the crest of this wave with our new Ocean Risk Initiative.
Rising to the ocean risk challenge
Recently, the World Meteorological Organization (WMO) confirmed that 2017 was the most expensive year in history in terms of losses from weather and climate-related events, costing the global economy an estimated US$320 billion. In 2017, we also saw a new record for global ocean heat content and the second warmest year ever for sea-surface temperatures. We are told that these phenomena, logically, are closely related.
One would also believe that these events contributed to the severity of the 2017 Atlantic hurricane season, helping to make it the costliest ever for the United States and wiping out decades of development progress in Caribbean islands.
The United Nations is calling on communities to become more “weather-ready” and “climate-smart”, to that we should add “risk-resilient” and a big part of that means understanding and building our resilience to ocean risk. This is where the insurance and finance sectors can help, but first we must overcome some serious challenges and reinvent our own approach to risk.
According to industry reports, as little as 26 per cent (US$54 billion) of overall economic losses caused by natural disasters worldwide during 2016 were covered by insurance as a higher percentage of damage occurred in areas with a lower insurance penetration1.
Lloyd’s of London has said the incentive to remedy this situation is enormous: for every 1 per cent increase in insurance penetration, the disaster recovery burden on taxpayers is reduced by 22 per cent2.
Two related realizations drive our own thinking on this. Firstly, our growing awareness of the escalating threats connected to ocean warming, acidification and pollution, brought home by the findings of the scientific expeditions and research projects we have supported. Secondly, the sad conclusion that failure to keep up with rapidly evolving risks like these is rendering the insurance industry less relevant, and therefore less trusted.
XL Catlin’s response was to launch a comprehensive Ocean Risk Initiative to generate research and debate, identify solutions and develop effective insurance products that together will reinvent our approach to ocean risk – and reclaim the position of the insurance industry as a dynamic, forward-looking risk management partner.
Our initiative involves both new components and a consolidation of XL Catlin’s long-standing work supporting ocean science. The five principal areas of activity are:
- – convening the world’s first Ocean Risk Summit, 8-10th May 2018
- – reports on identified areas of ocean risk
- – regular briefings on emerging topics
- – the creation of annual Ocean Risk Scholarships for early career scientists, and
- – our Oceans Education programme that aims to increase ocean literacy by reaching 10 million school children by 2020.
Ocean risk is an evolving and unpredictable field. We hope this programme will highlight and communicate the potential impact that the changing ocean will have on governments, businesses, communities and the environment. We believe the insurance industry should take the lead in stimulating a global, constructive debate and help identify solutions to this major global challenge.
About the author:
Mike McGavick has been chief executive officer of XL Group Ltd since 2008. With Mr McGavick as CEO, XL has built its premier position as the company its clients and partners look to for solutions to complex risks. In 2014, Mr McGavick was named the Insurance Leader of the Year by St. John’s University School of Risk Management. Previously he has been recognized as one of the top 100 Game Changers in the last hundred years of the insurance industry by Leaders Edge, the Bermuda Insurance Institute’s (Re)insurance Person of the Year, the Review Magazine’s Industry Personality of the Year and Reactions Magazine’s Insurance CEO of the Year.