A new report from insurance and reinsurance marketplace Lloyd’s of London has urged the industry to work more closely with city administrators to improve risk management and unlock the opportunities presented by growing urbanisation.
The report, published in association with Urban Foresight and Newcastle University, noted that urbanisation provides opportunities for insurers in part because of cities’ scale and the demand for rapid change as they develop.
“Urban areas are a broad market, they tend to be more affluent and have more assets, people and liabilities to insure than rural zones,” Lloyd’s said.
Levels of urbanisation are also increasing rapidly, with large cities set to account for 85% of global GDP by 2030, and more than two-thirds of the world’s population forecast to live in urban areas by 2050.
These two trends mean that populations and economic assets are becoming increasingly concentrated, which in turn increase the impacts and potential losses from disasters.
However, the report also concluded that many cities are unprepared for the with urbanisation, with most administrators tending to rely on forms of self-insurance.
Based on interview with stakeholders, the Lloyd’s found that insurance is still unknown or not considered in some countries, with cultural barriers meaning that the benefits of insurance protections are often not considered.
In response, the report urged re/insurers to work and interact more often with risk managers at a local level, in order to close the knowledge gap, meet every day municipalities’ needs and implement risk-mitigation measures.
It also recommended that the industry work with insurance clients to help them understand how pricing for premiums are calculated, and to communicate and share expertise on the learning experience of other sectors.
One areas where collaboration could be particularly important is regarding the collection and sharing of data, Lloyd’s suggested.
For example, the report states that “insurers should help communities understand, prevent and reduce risk through risk research and analytics, catastrophe risk models, and loss prevention.”
But by sharing their data and risk insights, cities can also help insurers decide on the most applicable coverages and learn from the experiences of past loss scenarios.
Lloyd’s further noted that the need to improve global resilience has been sharpened in recent months by the COVID-19 pandemic, which has brought into focus the impacts systemic risks can have on urban areas, with severe economic and social consequences extending across the world.
“Lloyd’s can work with cities to help them understand their risks and exposures, and the insurance industry plays a big role in helping mitigate these risks and improve their resilience,” said Trevor Maynard, Lloyd’s Head of Innovation.
“The Lloyd’s market already has a lot of products meeting the needs of municipalities around the world and we are working on products that target policyholders’ future needs,” Maynard explained.
“Nevertheless, there is still a long way to go to develop further interactions between cities and insurers in order to increase collaboration and understanding.”
Graham Throwers, Head of Infrastructure & Investment, Urban Foresight, also commented: “The commissioning of this report was prescient. As cities continue to evolve, their shape and functional performance is being questioned like never before. Recent events have highlighted the importance of our great cities as concentrations of economic, political and social activity. They are also environments in which risks concentrate.”
“This report treats cities as highly interconnected systems of systems,” added Throwers. “In so doing it adopts a holistic view of urban risk. Cities at risk aims to give cities the tools they require to preserve and enhance the lived urban experience whilst managing the many challenges they face.”
Source: Reinsurance News
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