In a turbulent world, we must securitize resilience: UNDP’s Kellett & Stander

Given the challenges faced in an increasingly volatile and turbulent world, insurance and risk finance are key tools that can help to shift the balance of risk, while insurance-linked securities (ILS) can “securitize resilience”, according to United Nations Development Programme (UNDP) representatives.

The UNDP published its Human Development Report today, with social insurance against future risks one of the key topics included.

As we reported roughly one year ago, the UNDP had launched the Insurance and Risk Finance Facility (IRFF), an initiative aiming to build financial resilience and bridge a $1.4 trillion global health, mortality, and disaster protection gap, with support from the insurance-linked securities (ILS) market expected in time.

The Insurance and Risk Finance Facility (IRFF) aims to channel risk to private insurance, reinsurance and capital markets over-time, significantly increasing the role of insurance and risk-financing in development.

In light of the new report published by the UNDP, Jan Kellett, Team and Corporate Lead, Insurance and Risk Financing at the UNDP and Daniel Stander, Special Advisor, Sustainable Finance for the UNDP, provided comment on the evolving risk financing views and the fact ILS capital is still seen as a critical component of this.

Kellett explained the backdrop, saying, “Growing global turmoil has led to unprecedented reversals in the progress of human development in 90 percent of countries. The pandemic – compounded by inequalities, climate shocks, rapid technological innovation, and social mistrust – has whipped up a perfect storm to wipe out human progress.

“Human development has reversed for a second consecutive year. We’ve never seen a backslide like this before. It’s setting us back to levels recorded in 2016 – to the start of the 2030 Agenda for Sustainable Development and the Paris Agreement.”

Stander added, “New challenges are interacting in complex ways to create an ‘uncertainty complex’. Humanity’s biggest challenges – the climate and biodiversity crises, inequalities and political polarization – coupled with technological upheavals, are piling up and feeding off each other. This is happening at a speed and scale beyond anything we’ve ever experienced.

“The intersecting of uncertainties is resulting in devasting impacts on our deeply connected societies. The invasion of Ukraine has compounded the greatest cost-of-living-crisis in a generation and a looming food security crisis that is threatening hundreds of millions. The COVID-19 pandemic, beyond its damage to people’s health and mental wellbeing, has also devastated economies and exacerbated gender inequalities.”

But Kellett sees opportunity here, saying that it is up to the world and industry to define where this mission to enhance and build on global insurance risk protection now goes.

“there is opportunity in uncertainty,” Kellett said. “The growing mismatch between the world as it really is and conventional ways of understanding and doing things creates an opportunity to do something new. Where we go from here is up to us.”

“Policies that focus on investment, insurance and innovation will enable people to thrive in the face of uncertainty. Investment to ease planetary pressures. Insurance to provide contingencies in a volatile world. Innovation — scientific, technological, economic, cultural — to respond to the unknown challenges that humanity will face,” Stander further explained.

But added that, “It is very hard for people to feel empowered and ready to navigate a future when they are worried about what might happen to their lives – whether losing a job, falling sick or having to deal with a flood, for example. Insurance can offer a psychological and financial safety net that helps people face uncertainty with confidence.”

The Insurance & Risk Finance Facility (IRFF) is a flagship initiative of the UNDP, designed to help finance the delivery of the Sustainable Development Goals.

Launched roughly a year ago by Queen Maxima of the Netherlands and UNDP Administrator Achim Steiner, the IRFF extends Germany’s Vision 2025, with the goal to provide protection against disaster and climate shocks to 500 million individuals by 2025.

Achieving such a target will require a significant change in the amount of available insurance risk capital around the world, as well as in how that capital is delivered.

Here, the UNDP continues to see the ILS market as a key contributor and partner, as initiatives like this scale-up.

Kellett said, “At the core of the IRFF is the belief that insurance can build resilience to climate, socio-economic and health shocks. If correctly imbedded into the sustainable development context, insurance provides a safety net, and provides the foundation for entrepreneurism and growth.

“This is especially critical for vulnerable people. Insurance protects assets, lives and livelihoods.”

Stander added that, “Risk capital – well deployed – is a powerful lever for stabilizing human progress and economic growth. It can reduce poverty, lessen inequalities and safeguard decent livelihoods.

“After all, what is insurance? It’s the way society manages volatility. And in volatile times – in times of unprecedented uncertainty – risk finance is even more important.”

Access to sufficient insurance and reinsurance capital to underpin these goals and initiatives will be key and Stander believes securitization and the capital markets, through insurance-linked securities (ILS), will have a considerable role to play.

“Given the scale of the challenge, we need both the capital markets and traditional re/insurance providers to lean in. We need public-private partnerships to craft solutions that are responsive to sustainable development contexts. And we need reinsurance and ILS capital to scale solutions that securitize resilience,” Stander explained.

In close saying that, “By working closely with the re/insurance industry and the capital markets, we can create futures in which people and the planet thrive despite uncertainties.”

Also read:

– UNDP launches Insurance & Risk Finance Facility, ILS support anticipated.

– UNDP and Generali partner on digitally enabled parametric insurance solutions.