There is a growing consensus that insurance, risk transfer, and sharing mechanisms have an important and growing role to play, particularly in offsetting the economic impacts associated with extreme events. What is less clear is the extent to which such instruments encourage adaptation programmes and policies that would serve to minimise future loss and damage and, hence, contribute to sustainable development. This paper does not pretend to offer answers, but rather contributes to the emerging discussion and brings to that discussion a water lens.
1 Purpose of this paper
The number of natural disasters of all types appears to have increased in the last few decades though there is some debate over the evidence for this. What is clear though is that the economic costs associated with extreme weather events have increased. For lesserdeveloped countries the developmental outcomes have been particularly severe. Recent research indicates that between 1990 and 2015, most economic losses resulted from flooding: around 40% of the total (Daniell, Wenzel, and Schaefer, 2016). Better flood management by governments, for example by China and Japan, seems to have resulted in reduced flood-related losses. Better disaster response and better building and infrastructure have reduced the relative costs in many developed countries. However, for developing countries the necessary regulations and investments are not in place, resulting in them being disproportionately affected when disasters do strike (UNISDR, 2010; Surminski and Oramas-Dorta, 2014).
As the global climate shifts and changes the frequency and intensity of natural disasters, they are expected to increase. It is, therefore, not surprising that there has been increasing interest among the global community in financing adaptation measures and the means to mobilise investments. In this context, there is a developing discourse emerging from recent Conferences of the Parties around loss and damage, risk-insurance facilities, climate-risk pooling, and other insurance solutions. The insurance industry is increasingly aware of the emerging challenges associated with disasters and climate change. An emphasis on loss and damage by itself runs the risk of limiting this risk to being reactive and compensatory as opposed to promoting measures that contribute to risk-reduction strategies and affirmative action. The scope for the development of products that provide an incentive for proactive policies and interventions poses a particular challenge in developing countries. This is in part due to weak and indebted economies, income disparities, and the often less than equitable provision of basic services.
Many products and initiatives have been developed, but it is not always clear what their effects have been and to what extent they prompt actions to reduce climate risks and build resilience (Gerber and Mirzabaev, 2017). It is necessary to explore the question of how climaterelated risk-transfer mechanisms, including insurance, can mobilise water-related disaster risk reduction investments and, by so doing, contribute to development. As the focus is on risk transfer, this paper will cover its role in promoting actions and measures that contribute to the reduction of loss and damage caused by waterrelated events and, by extension, disaster risk-reduction measures that provide protection from extreme weather events. This paper does not set out to provide solutions or answers to that question. Rather, it seeks to promote a discussion between the insurance and water sectors around this question.
Humans have always been exposed to hazards and risks. Arguably, the ability to think ahead and plan for future eventualities is one of the features of human development and is a risk-management strategy. Risks associated with natural disasters have generally been associated with non-human forces – the forces of nature – and, therefore, beyond human agency to control, though the effects may be mitigated. The sociologists Beck and Giddens, with whom the term ‘Risk Society’ (Beck, 1992) is associated, have argued that through the process of modernisation societies are now exposed to risks that are products of that process rather than non-human forces. They contend that ‘manufactured’ risks (Giddens, 1999) are products of an increasingly industrialised society, developments in technology, and human agency, which both produce and mitigate such risks. Climate change comes to mind. One of the features of ‘manufactured’ risk is that much of what we know about it comes from those with specialised knowledge (experts) rather than through direct experience. Beck (1992) held that widespread risks contain a ‘boomerang’ effect in as much as those who were involved in the production of the risk will also be affected by it and, at the same time, are those best placed to address the problem. It also affects those not responsible for the risk.
This has given rise to the concept of ‘wicked problems’ (Conklin, 2006; Rittel and Webber, 1973), which include climate change and natural disasters. So scientific and technological development have catalysed the problems associated with climate change. But, at the same time, we look to science and technology to provide the solutions or at least reduce the risk to manageable proportions. Manufactured risks can lead to global-level inequalities as well as reinforcing more localised inequalities. Here, the distribution of the risks is as much a function of knowledge of the risks as of the consequences of wealth inequalities. Together, these result in “differential access to forms of self-actualisation and empowerment” (Giddens, 1991, p.6), of which access to risk-management options including insurance would be a feature.
The term ‘natural disasters’ deflects us away from their manufactured nature. Disasters are only such when a natural hazard affects human lives and social well-being. A disaster does not happen unless people and infrastructure are vulnerable. Often, that vulnerability is a result of decisions around the development of the built environment and not using information at our disposal appropriately, or ignoring it. And vulnerabilities are being heightened by rapid urbanisation, environmental degradation, and climate change. In most societies there is the idea that individuals have an obligation to look out for the well-being of others, often using the state as an intermediary. Concomitant with this is the expectation that when assistance is needed, it will be provided. Quiggin (2007) observed that, “In an increasingly diverse society, this kind of social solidarity cannot be assumed to exist automatically.”
In this context the role of the state is the management of the risks to society through its various institutions. However, it must be recognised that there are practical limits on the state and the forms in which it enables the management of risk, whether through state, collective, or individual actions. It is a practical impossibility to avoid the consequences of disasters and to manage all associated risks. The state therefore exercises choices that balance the extent to which it manages risks through the delivery of infrastructure with the provision of other forms of social protection and recompense. Conversely, the state through its actions also contributes to the manufactured nature of disasters through failures to address systemic socioeconomic inequalities, allowing poor or inappropriate development and infrastructure, lack of capitals and, in some cases, the outsourcing of its functions. The gaps generated by the state, deliberately or inadvertently, in the provision of social welfare services in the face of disasters, create space for other forms of risk-transfer provision. These are opportunities that non-state transnational actors are taking up increasingly. Hence, there has been a growth in interest in the role that the insurance industry can play in climate and disaster risk reduction. In theory this should lead to a virtuous circle of better social protection interventions. How exactly this can be realised in and through interventions in the water sector is very much an emerging discussion.