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In 2014, the world's largest reinsurer Munich Re reported that the human and economic cost of natural disasters had dropped from $140 billion to $110 billion. No rejoicing was to be had however as the insurance giant made it very clear that one year of lower costs does not signal a reduction in overall risk.
But then again, Munich Re's recently released bi-annual report shows that the economic cost so far this year has dropped again from $42 billion to $35 billion. However, the death toll has risen from 2,800 people to 16,000, mainly due to the deadly earthquakes in Nepal. Overall, insurance has covered $31 billion in claims in 2014 in respect of natural disasters and £12 billion so far in 2015.
Apart from pay outs and bi-annual updates, insurance and reinsurance companies are becoming vocal on issues of resilience of cities, climate change, and disaster risk reduction. In February 2014, Willis, the global insurance broker and risk advisor, sent a large contingent to the UN World Conference on Disaster Risk Reduction in Sendai, Japan to present their 1-in-100 initiative which seeks to develop and embed natural hazard risk measures into the global financial system by 2020. This is a large undertaking that outweighs a traditional corporate responsibility project, so why bother?
We often talk of disruption as one of the new positive global trends in business and strategic innovation, but with the increase in the number and severity of natural disasters over the last decade, global businesses are coming to realize the true extent of the disruption that natural disasters and under-preparedness can have on their bottom line. This has been on the minds of the insurance industry for decades, particularly following a number of European and North American insolvencies in 1980s and 1990s following Hurricane Andrew. Since then, the insurance sector has established new operational systems to cover disaster risks and encourage resilience as necessary conditions in many policies. Other businesses would do well to follow Willis and others' example of embedding disaster risk reduction and preparedness into their day-to-day operations if they want to mitigate the unwanted disruption that can follow natural disasters.