Climate Risk Management: Promoting Economic Stability And Social Good

Overcoming the big challenges…

D/SRUPTION spoke with Toby Behrmann, Senior Manager of Innovation and Partnerships at Global Parametrics, who explains how the startup is spearheading an innovative approach to disaster risk management.

Businesses across the world have to overcome many challenges. They must keep up with competitors, stay true to the needs of consumers, prepare for cybersecurity breaches, ensure appropriate data management, and remain financially viable – if not profitable. Increasingly, in the face of climate change businesses need to manage risks associated with more extreme and unpredictable weather.

In the past, micro insurance schemes offered limited protection to smallholder farmers and other businesses, but an increased frequency of natural disasters requires a more sustainable solution.

Reshaping climate risk management

Launched in 2016, Global Parametrics was set up with the aim of creating a marketplace for parametric insurance to deliver both social good and economic protection. Instead of offering insurance products directly to individuals, the company equips organisations with the risk management tools needed to build up resilience.

“Even though it is becoming clear that sustained insurer losses caused by unmanageable weather events need to be addressed, the industry has struggled to find a scalable solution,” says Behrmann. “Extreme weather takes a huge toll on any area that it hits, but especially in developing nations, where 94 per cent of natural disasters are uninsured. In these countries, infrastructure and resilience is already very poor, mainly due to lack of government funding which depletes faster when disasters strike.”

Developing nations account for a considerable chunk of the global economy, so if they suffer, so does the rest of the world. According to Behrmann, smallholder farmers and fishermen are responsible for 50 per cent of global agricultural production, so extreme weather has a serious impact on global food supply. It also places strain on neighbouring countries when ‘climate refugees’, having lost their homes, try to make a new life elsewhere.

“Additionally, natural disasters worsen financial inequality in emerging economies. Most of these populations are unbanked and are left unable to cover losses like destroyed crops, livestock or equipment, resulting in a downward spiral of debt and poverty that becomes worse with each disaster,” says Behrmann.

In other words, it’s not just the economy, society, and businesses in climate-impacted regions that suffer when natural disasters happen.

Can technology tackle the problem?

Diverting disasters with data

“Many countries in emerging markets don’t have the sophisticated infrastructure or weather systems that more developed countries have. This lack of access to meaningful risk data and financial solutions has created a protection gap which inhibits investment and hurts the poor,” says Behrmann. “We are able to build weather histories for countries that have never had them before using large databases of worldwide weather data.”

Global Parametrics has access to various national meteorological databases from NASA, as well as the Barcelona Supercomputer Centre, which is the largest supercomputer in Spain. This allows the company to achieve sophisticated weather modelling that can predict when and where natural disasters are likely to happen.

“In all that we do, we consider how our work will help to close the disaster protection gap in developing countries and improve the lives of the most vulnerable. Technology allows us to compile a robust picture of a risk scenario and assess the impact that it will have on a community ahead of disaster striking. We then work with organisations on the ground to warn citizens of the impending event so that they can protect themselves accordingly.”

An example of this approach in action is the B-Ready project, developed in partnership with Oxfam Novib in the Philippines. A forecast model predicts the impact of a tropical cyclone, and warns if a typhoon is on the way. Local Oxfam teams can then allocate funding to communities so they can protect their livelihoods, bolster their infrastructures, or even leave the area. The aim of the project, and others like it, is to place a safety net under high climate risk areas so that recovery is less of a blow. The upshot of this is that businesses, and therefore the economy, continue to function.

Unlocking an untapped market

Building climate resilience is, first and foremost, a benevolent endeavour that alleviates the painful experience of recovering from natural disasters. This is clearly beneficial for the socio-economies of specific regions, and consequently the rest of the world. It is also commercially advantageous, and provides an opportunity for the insurance industry to rethink risk management.

“Our goal is to create new opportunities for insurers, financiers and investors in areas that would otherwise be difficult to penetrate,” says Behrmann. “For years, finding a way to insure remote regions in emerging markets has seemed like looking for the Holy Grail, but if our parametric solutions can be tested and scaled then it would unlock a whole new untapped market for insurers and financiers.”

Global problem, global solution

As with all ambitious and innovative projects, partnerships have played a central role in Global Parametrics’ work. Aside from collaborating with charities like Oxfam, the company has looked to governing bodies for support. It goes without saying that improved climate risk management is something that governments are keen to encourage.

“We knew that government support would be crucial to achieving our aim of bringing a viable approach to managing climate risk to the global financial market. The funding we received from the UK’s Department for International Development (DFID) and Germany’s KfW (a development bank) gave us the capacity to test new products on a larger scale than would have been possible with private sector funding. Through working with governments, we are aiming to build up enough credibility that institutions and insurers will embrace our ideas and fund our work themselves,” says Behrmann.

Global Parametrics is also building credibility and articulating its purpose by aligning with the UN’s Sustainable Development Goals. It is hoped that government backing will give institutions and insurers the confidence to fund climate risk management projects themselves, because the impact of natural disasters can’t be solved through government funding alone.

“Corporations must and should assist in the efforts to mitigate risk, not only for the positive socio-economic effect it has on emerging markets, but also for their own commercial development. By adapting new and innovative ways of predicting and mitigating risk like parametric modelling, new markets can be created, which would ultimately secure revenues in traditionally hard to unlock regions.”

Organisations want to do good, but need to do so in a way that is financially justifiable. It is this commercial angle – otherwise known as the business case – that will ultimately drive mass change. Fortunately, data-driven climate risk management presents a host of remedies for economic and societal improvement, leading to more developed markets, more resilience, more value retention, and ultimately better business.

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