Looking to the future

Across the world, the issue of sustainability and particularly of how to tackle climate change, has risen up the agenda fast this year. As Liz Booth reports, protests in the developed world have brought the climate change issues to the fore once more but it is in the less developed parts of the world, notably Africa, that the physical effects are likely to hit hardest… At the start of this year, African risk managers belonging to the Institute of Risk Management (IRM) were warning that extreme weather events were at the top of this risk list. Sadly, as those in Mozambique can testify, the year has also heralded two tropical cyclones making landfall in east Africa in the same season – for the first time in recorded history. In Africa, the IRM report said, the top risks remain extreme weather events, political and reputational risks. As the year started, Zanele Makhubo, CFIRM, director enterprise risk management and business continuity in the public sector, and chair of the South Africa IRM regional group, said the unpredictability of weather patterns due to climate change posed a serious risk. “In South Africa we are currently experiencing an extreme heatwave, which is accompanied by heavy thunderstorms,” she said. “There is a risk of potential tropical cyclones. To mitigate the risk of severe damage to human and animal life, disaster risk assessment and scenario planning needs to be conducted to inform the resilience strategies. “This will require a multidisciplinary approach of disaster management competencies that are smoothly coordinated across the spheres of government and the private sector. Investment in new technology and disaster risk management resources is critical to keep up with the forever-changing climate.” Her warning on cyclones was proved true in March and April, as two major storm events hit Mozambique with devastating consequences. Those storms underlined ongoing debate across the continent about the risk of climate change impacts and also about broader sustainability issues. The UN in Africa So far this year, the United Nations (UN) has been part of two major events bringing African insurance industry leaders and UN environment experts together to address this issue. Last month, the UN secretary-general said the work of the United Nations – in peace and security, in human rights, in development, in relation to climate change – can only succeed in the world if it succeeds in Africa. Under the auspices of the UN Environment Programme’s Principles for Sustainable Insurance Initiative (PSI) – the largest collaborative initiative between the UN and the insurance industry – African insurance leaders and practitioners, together with climate change, disaster resilience and sustainability experts, convened in Lagos for the second PSI African Market Event. The purpose of what has now become an annual event (the first being held in South Africa in 2018) is to share experiences and ideas to support the growth, resilience and sustainability of the African insurance industry and to drive sustainable development. The Lagos event, hosted by Continental Re, the first African reinsurer to sign the PSI, focused on three main sustainability issues in Africa: closing the risk protection gap; resilient cities; and sustainable food systems and agriculture. Participants agreed that there is a fundamental need to better demonstrate the value proposition of the insurance industry – as risk managers, insurers and investors – in addressing sustainability issues. And this value has to be communicated effectively to stakeholders – from individuals and households, to businesses and governments. “The recent devastation wrought by Cyclones Idai and Kenneth is yet another wake-up call for the urgent need for action and collaboration to better manage risk and support sustainable development,” said Dr Femi Oyetunji, group managing director and CEO of Continental Re plc. He welcomed the practical initiatives to emerge from the PSI meeting. For example, leading Nigerian insurers agreed to engage with local government authorities in Lagos to explore the development of a “city sustainable insurance roadmap” – a strategy and action plan to help Lagos become resilient and sustainable. With more than 21 million inhabitants, the bustling megacity of Lagos is the economic, financial and cultural heart of Nigeria, Africa’s largest economy and most populous country. Lagos is vulnerable to sustainability risks such as flooding, sea-level rise, coastal erosion, disease outbreak, energy insecurity, and infrastructure failure. The idea to develop a Lagos sustainable insurance roadmap supports the aims of the Insurance Industry Development Goals for Cities, which serves as a global action framework for the insurance industry to help make cities inclusive, safe, resilient and sustainable in line with UN Sustainable Development Goal 11. “The UN Sustainable Development Goals aim to deliver prosperity for all on a healthy planet and are premised on the pledge to leave no one behind,” said Butch Bacani, who leads the PSI Initiative at the UN Environment Programme. “This is why the UN’s work to achieve sustainable development in Africa is absolutely essential. And this is why the PSI is working together with the African insurance industry to tackle key sustainability challenges – from climate change, environmental degradation, pollution and disaster vulnerability; to social inequality, financial exclusion and health risks. “We are pleased to see more and more African insurers and reinsurers demonstrating sustainability leadership, action and ambition,” added Mr Bacani. As part of the need to develop better data and catastrophe risk models and enhance climate risk management, participants agreed to look into opportunities to develop flood maps for the capital cities of Lagos and Accra in west Africa, and for the southeast African countries of Mozambique and Mauritius. If this is achieved, there is optimism that the initiative could be rolled out further on the continent to help governments, communities and insurers plan ahead and work together to reduce flood risk and build resilience. Furthermore, the group agreed to gather information on agricultural insurance schemes to develop a pan-African approach to promoting sustainable food systems and agriculture. “Whether it’s the cyclones in Mozambique, the droughts and wildfires in South Africa, ebola and malaria across the continent, or the floods in Lagos, there is no question that we must urgently meet the sustainability challenge,” added Dr Oyetunji. The Egyptian approach Meanwhile, in Egypt, the insurance industry has agreed a pioneering initiative to develop a national sustainable insurance strategy and action plan – described as a “roadmap” – by 2020. This aims to harness the triple role of the Egyptian insurance industry as risk managers, insurers and investors for economic, social and environmental sustainability. Insurance leaders and financial regulators, UN officials and key stakeholders gathered in Cairo recently to discuss ways to tackle major sustainability challenges – from climate change, pollution, water scarcity and disaster vulnerability, to social inequality, health risks and the insurance protection gap. Dr Mohammed Omran, chairman of the Egyptian Financial Regulatory Authority, said: “Sustainability is part of my core mandate as Egypt’s insurance regulator. We expect this roadmap to enhance the Egyptian insurance industry’s resilience, stability and sustainability, as well as contribute to achieving the aims of the UN Sustainable Development Goals and the Paris Agreement on Climate Change.” Since sustainability challenges require collaborative action and innovative solutions, and also present new opportunities and markets for the insurance industry, the aims of the inaugural PSI Egyptian market event have been championed by Alaa El-Zoheiry, chairman of the Insurance Federation of Egypt. As a result of constructive discussions during the PSI event in Cairo, the Insurance Federation of Egypt recently announced that it has already taken the first step on its sustainability journey by creating a sustainability committee. Mr Bacani, who also chaired the inaugural PSI Egyptian market event, said: “As a cradle of civilisation, Egypt has shown resilience and sustainability over several thousands of years. “However, global sustainability challenges such as climate change, unprecedented loss of biodiversity, a polluted ocean and growing social inequality are threatening our common future.” He added: “By developing a national sustainable insurance roadmap, the Egyptian insurance industry is demonstrating the vision, leadership, collaboration and ambition needed to achieve sustainable communities and economies, and a healthy planet.” The insurance role The president of the African Federation of Insurance Companies, Adama Ndiaye, has also warned of the need to work together as climate change increases the risk of major catastrophes, pointing to the recent Cyclone Idai and its impact on Mozambique, Malawi and Zimbabwe. “The need for collaboration during emergencies related to climate change is now more important than before,” he said. “We see risks differently, but we need to work together as English-, French- and Portuguese-speaking countries. There are regulations we could compare and bring together to work as a single market,” he added. Meanwhile, John Melville, chief underwriting officer of Santam (which hosted the first PSI event in 2018), added: “Sustainability issues such as climate change and environmental degradation are leading to diverse, interconnected and complex risks, but also present new opportunities for collaborative action to mitigate risk and improve physical and financial resilience.” The protection gap has become a mantra in developing markets, but the conversation needs to be a broader conversation about resilience, suggested Dr Swenja Surminski, head of adaptation research at the Grantham Research Institute on Climate Change and Environment in London. She believes that the insurance sector and its insureds need to address risks as a whole. These risks are broader than climate alone, she stressed, and must include societal and economic risks posed by climate change. “I don’t think society is prepared for climate risks,” she said, “but that provides an opportunity for the insurance market to add value and provide innovative products.” Cassim Hansa, managing director at Continental Re Botswana and PSI board member, pointed out that the continent has had a very visible example of the damage that climate change could bring with the two cyclones making landfall in Mozambique in the same season – something that has never happened in recorded history. Dr Surminski said insurers understand risk like no one else but that needs to be communicated and used as an opportunity to change human behaviour. Concentrating on flood risk, she said: “Building flood resilience for people, communities, businesses and governments requires a paradigm shift away from post-event reaction toward the anticipatory management of flood risk. “Where we just rebuild, it is not sustainable,” she added. It is time to change the narrative, she stressed. Too often, she warned, governments (in office for relatively short fixed periods) have little interest in investing in disaster resilience. They want, she said, the opportunity to be seen on TV with tangible results such as a new school or hospital. However, she suggested insurers have an opportunity to present the economic benefits of supporting resilience and to turn the conversation from one about spend to one of opportunity. Insurers must work together with risk managers, brokers, local authorities, governments and all those with the power to make change, if the industry is to remain sustainable, agreed Vanessa Otto-Mentz, head, group strategy unit, Santam. “There is a huge opportunity to partner,” said Ms Otto-Mentz. She suggested that insurers could have a real role to play in translating the information emerging from the scientific community to stakeholders including insureds, regulators and governments. Insurance is a powerful tool, she stressed, but too often the insurance voice is not heard. It is also the source of huge innovation. For example, Ms Otto-Mentz pointed to a Swiss Re project in Latin America, where it insures the risks of damage to coral reefs. The insureds are hoteliers with an interest in maintaining the reef to attract tourists to their hotels. When temperatures rise above a certain level, the insurer pays for the cost of experts to work on recovery of the reef. Ms Otto-Mentz said this kind of example can be translated to Africa, where there are huge opportunities to leapfrog some of the challenges posed by legacy systems in Europe and other parts of the developed world. The coastal question Meanwhile, as the climate change and sustainability conversation deepens, African businesses are being challenged to wake up to the economic, social and environmental power of the ‘blue economy’. Momentum is also gathering for companies based in Africa’s coastal nations to fully recognise and understand the benefits of backing a blue economy, which covers a wide range of productive sectors that are crucial for the continent’s sustainable development, including fisheries, aquaculture, transport, energy, trade and tourism, as well as extractive industries. Research indicates that the blue economy has the potential to be a major source of wealth and prosperity for the continent and help advance the African Union’s Agenda 2063 and the UN Agenda 2030 for Sustainable Development. The importance of a cohesive strategy that will protect and use Africa’s coastal waters cannot be overstated, according to organisers of the second Africa Blue Economy Forum (ABEF), and include: u 70% of Africa’s nations are coastal u 90% of the continent’s imports and exports are conducted via sea transportation u Africa’s maritime industry is estimated to be worth $1trn per year u The asset value of ocean economy ecosystems is valued at $24trn u Plastic pollution costs $13bn per year due to damage caused to marine ecosystems. Leila Ben Hassen, organiser and founder of ABEF 2019, said: “There needs to be more awareness of the blue economy and a realisation of how important it is to the future of Africa. Governments are beginning to understand this and beginning to implement policies, but it still needs the private sector to grasp this and to look at how it can work in partnership with governments and other organisations to make this succeed. “Collaboration is necessary to make this work and deliver huge benefits for the continent, enabling it to meet the United Nations’ Sustainable Development Goals,” she added.

Looking to the future

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