Future urban risk landscapes: An insurance perspective

This paper assesses future urban risk landscapes with an insurance perspective. Going forward, urban risks are expected to be driven by three main underlying trends: first, climate change and a rising frequency and severity of extreme weather events; second, smart urbanisation and the risk of systemic and catastrophic disruptions; and third, socio-demographic shifts such as income and wealth inequality and the rapid ageing of rich-world populations and infrastructures. These trends have the potential to adversely affect multiple critical parts of a city’s operations, putting the health, lives, livelihoods and assets of inhabitants at risk.

Based on expert interviews and research, the paper makes the following four recommendations for insurers and public authorities to consider. Two recommendations require close collaboration between the public and private sectors while the remaining two are more in the court of insurers and municipal authorities, respectively.

1. First, deploy concerted public-private efforts in risk management, e.g. through targeted government investments in resilience-building infrastructure and insurers supporting authorities in city planning, as well as in the development and implementation of risk management strategies, based on their technical expertise and access to vast pools of data.
2. Second, harness insurance investment funds for building urban resilience. Only a tiny fraction of the industry’s USD 36 trillion pool of investable assets is allocated to infrastructure projects. More investments should be geared towards capital spending in emissions reduction and improving resilience, which would ultimately contribute to the protection of insurers’ balance sheets.
3. Third, explore innovation in risk transfer, for example through parametric insurance, which, in combination with advanced technologies such as the Internet of Things (IoT), could also help address the major insurance protection gap afflicting those families living in informal settlements.
4. Fourth, address barriers preventing cities from engaging with insurers. Insurers should communicate with municipal authorities about insurance products in terms of coverages and pricing approaches.