Recent years have seen increased volatility in both frequency and severity of climate and disaster events.

Author: Antoine Bavandi

Most of which are leaving communities, businesses, supply chains, infrastructure and critical services uncovered, with the global risk protection gap sitting largely in excess of 90%1.

Protection gaps differ widely in terms of size, nature and dynamics, depending on geographies, perils (e.g. cyber, business interruption, natural catastrophe, health), and the general maturity of countries’ insurance markets.

But with the emergence of new risks - climate change, ESG2, transition to low carbon economies, growth concentration (including of both tangible and intangible assets), rapid urbanization, and consolidation of the global supply chain to name a few - systemic or highly correlated risks now have the potential to cause disruptions in ways never seen before. When stacking up these perils and exposures, the protection gap can be measured in trillions of dollars.

Reasons for this are manifold, and include insufficient risk awareness, behavioral biases towards risk, reliance on ex-post assistance insurance affordability on the demand side, as well as lack of regulatory environments or mature insurance markets, data availability and implementation costs on the supply side. Such a broad range of issues requires a coordinated and comprehensive approach to helping clients navigate through uncertain times.

Bigger, Stronger, More Sustainable: Climate resilience through holistic public-private risk solutions

Global Solutions to Global Risks

Against this backdrop, matching capital with risk is not a small task, and the race to securing a (re)insurance cover alone not a silver bullet. The solution is perhaps to be found by addressing the actual demand from clients and helping them achieve effective financial resilience overall.

Insurance and reinsurance are only part of a much wider set of highly complementary instruments. Some of these include:

  • comprehensive risk financing strategies
  • broader understanding of systemic liabilities and risks (e.g. through forward-looking analytics and scenario-based stress-testing that integrate the true nature of all perils and their compounding, indirect impacts over time)
  • risk reduction incentives and investments
  • use of contingent capital
  • efficient claims or disbursement mechanisms
  • prevention
  • climate adaptation
  • green finance

Creating such an ecosystem of mutually reinforcing mechanisms not only contributes to more robust financial protection overall, it also makes risk transfer a more cost-effective instrument3. This helps unlock the full benefits of transferring residual risk to third parties where most relevant, as part of a coherent and fully integrated response to climate shocks and extreme events. And in turn, allowing businesses to grow in more sustainable ways and outperform4 their competition.

Bigger, Stronger, More Sustainable: Climate resilience through holistic public-private risk solutions

Easier said than done. Connecting qualitative and quantitative instruments, short vs long-term objectives, pre-planned vs opportunistic buying and multi-peril, multi-asset, multi-line-of-business protections calls for a new approach to financial risk management. One that provides a more holistic perspective on a wider range of financial risks and one that operates truly in the boundaries of a fully connected global risk environment5.

This was not possible a decade ago, but state-of-the-art analytics and multi-disciplinary risk engineering are shifting the traditional way of preparing for financial shocks, which still requires above all a capacity to leverage expertise from very different domains (climate science, catastrophe risk analytics, reinsurance and capital optimization, risk prevention, management and intermediation) for an all-encompassing response to global threats.

That might still not be enough. Strengthening financial resilience and reducing the protection gap globally calls for larger measures and stronger incentives. Conditions that allow all parties and partners involved in the resilience and risk ownership chain to align interests and benefit from mutual contributions.

Well-targeted, multi-stakeholder, public-private partnerships and risk-sharing facilities can create these necessary conditions to help overcome various implementation and sustainability constraints. Legal, regulatory, technological, cultural and other financial barriers often represent major bottlenecks to successfully responding to major disaster events. And recent support from international donors (e.g., through premium subsidies, and technical assistance aiming to accelerate insurance penetration) is also changing the status quo. However, these partnerships take time before they can be implemented successfully6, including for reasons related to risk model development and high degree of risk aversion from public entities. But the urgency of the climate, energy and political crises certainly justifies accelerating the pace of development and bringing all financial protection instruments to bear.

Gallagher Re has launched a unique, all-encompassing service for all its clients - big and small, corporate and public - through a bespoke climate resilience and public sector solutions global practice. By offering more than risk transfer and by adopting a problem-solving approach which connects all dimensions of resilience, our Public Sector & Climate Resilience Solutions Global Practice focuses on unlocking the full benefits of financial risk management. Pooling expertise from across the global Gallagher Re organization and network of partners, it delivers analytics, advisory and transactions to help clients best address catastrophe and systemic threats, constantly adapting to their business needs and their evolving risk environment.

Climate & Systemic Risk Analysis

The launch of our Public Sector & Climate Resilience Solutions practice is a major stepping stone in our journey towards stronger businesses, livelihoods and economies. We look forward to helping clients – public and private – strengthen their financial resilience and support their sustainable growth plans in the years to come.

Author Information


1. The Geneva Association (2018), the risk protection gap being defined as the difference between total losses and insured losses

2. Environmental, Social and Governance (ESG) risks include those related to climate change mitigation and adaptation, environmental management practices and duty of care, working and safety condition, respect for human rights, anti-bribery and corruption practices, and compliance to relevant laws and regulations.

3. Following Hurricane Charley, claims analysis (IBHS, 2014) showed a reduction of both frequency (-40%) and severity (-60%) of damage to homes built after 1996, when stricter codes went into effect in the area. The new building code implemented after Hurricane Andrew (1992) reduced the physical vulnerability of properties, and in turn made insurance more affordable.

Deloitte Global Resilience Report (2021), defining resilient organizations based on five attributes: prepared, adaptable, collaborative, trustworthy, responsible, and reporting outperformance during the covid-19 crisis.

6. Natural catastrophes and extreme events can affect economic resources and critical infrastructure and services, such as energy, transport, agriculture, but also banking and payment services. In addition to the cost of the direct (physical) losses and supply bottlenecks (demand surge), indirect impacts arise from business interruption and other intangible assets (such as IP, data, brand value and lost opportunities), increased uncertainty from investors, and other market-related losses.

6. The highly sophisticated and comprehensive Mexican and Moroccan programs required development phases spread over multiple years before insurance policies and contingent response plans were put in place. In the United States, the Federal Emergency Management Agency (FEMA) - funded by general taxation. also eventually turned to private market support decades after setting up its National Flood Insurance Program (NFIP), and just months before Hurricane Harvey struck Texas, saving taxpayers close to USD1bn from the reinsurance proceeds. Another example of the time or experience needed to operationalize risk response mechanisms efficiently.