Canadian Underwriter
Feature

WANTED: Partners against natural disasters


July 1, 2000   by Linda Matthews, COO of Royal & SunAlliance Canada


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Weather-related losses since 1996 have been higher than historic norms. Review the evidence. More than four million Canadians have been forced out of their homes through natural disasters such as floods in the Saguenay region of Quebec and Manitoba, and the ice storm that paralyzed so much of eastern Canada. The resulting damage has cost insurers and governments billions of dollars in emergency aid and repair. For insurers vulnerable to the destructive effects of climate change, the only certainty remains uncertainty itself.

But the weather is only one piece of the picture. Montreal, Toronto, Ottawa and Vancouver are built along fault lines (admittedly, the potential for earthquakes is greater in some regions than in others) leading the Office of the Superintendent of Financial Institutions (OSFI) to try to confirm whether there are sufficient resources in reserve to handle such as disasters.

As for the international community, the situation is more severe. 1998 was the worst year on record for natural disasters. Clearly linked to global warming, such catastrophes created more refugees than either war or internal conflict and, according to Munich Re, cost global insurance companies more than US$90 billion.

Can those responsible for emergency relief in Canada afford another five-year string of floods, drought and winter storms before we have fully digested the cost of the previous five years? Or is it time to forge partnerships to lower both the cause and impact of natural disasters, and minimize financial risk?

Seeking natural alliances

Natural alliances are not difficult to find. While our motivation may differ, Canadian property and casualty insurers have a lot in common with organizations such as the Canadian Red Cross — we are each involved in risk prevention, and we provide first class disaster relief and development support following major catastrophes. Given almost identical goals, there is a clear opportunity here for a meeting of humanitarian and underwriting minds for the purpose of reducing exposure to disaster risk while beefing up immediate emergency response for both domestic and international catastrophes.

As such, Royal & SunAlliance has joined the ranks of several large Canadian corporations in a partnership with the Foundation of the Red Cross and Red Crescent Societies. This year alone, this cross-section of retail and service industries will provide $3 million in cash, goods and services to the Canadian Red Cross Disaster Corporate Partnership Program. Peter Walker, director of disaster policy for the International Federation of Red Cross and Red Crescent Societies, noted recently that in the U.S. in the 1930s, government, the Red Cross and insurance companies teamed up to combat disaster and lend support to those who needed assistance. Walker suggested the need to duplicate something similar to the American Depression Model on an international scale. The Canadian Red Cross Disaster Corporate Partnership Program is headed in this direction. From air cargo space (Air Canada) to blankets (The Bay) each company brings specific expertise to the partnership to aid the Canadian Red Cross in delivering personal disaster assistance to the victims of emergencies.

Bringing insurers to the table

There is enormous scope for Canada’s insurers to share our experience and knowledge when dealing with the aftermath of a disaster. By sharing expertise, we bring combined disaster management competencies to a higher level. Royal & SunAlliance has undertaken a project to assist the Red Cross in updating and revising its standards and operating procedures as they relate to disaster services, and provide a national platform for the agency to help Canadians prepare for emergencies.

There is a body of evidence to suggest that the better equipped people are to cope with a disaster, the less impact it will have. For example, millions of dollars in personal loss and residential damage resulting from the ice storm could have been avoided if homeowners had been aware of the need to turn off water during extended power disruptions.

The World Bank is considering rating countries by their disaster preparedness as an indicator for reinsurance companies. And some insurance companies already offer reduced premiums to those who take concrete steps toward minimizing potential loss. In this instance, we are building awareness from the ground up. During the Saguenay floods, the Red Cross found that many children in the area were traumatized by the disaster and needed help coping with the aftermath. The agency prepared emergency kits and other materials that local schools could incorporate into their daily classes. Through the Disaster Corporate Partnership Program, the Red Cross plans on taking this education initiative national.

Cynics may see an insurance company’s involvement in such alliances as self-serving. We are, after all, risk managers, and efforts to prevent disasters, lessen the impact and deal with the aftermath in a more cost-effective manner, will reduce our exposure to disaster risk and related pay-outs. However, the insurance industry’s involvement in natural disaster mitigation programs goes beyond merely the “insured cost” and involves a corporate social responsibility. For instance, only 2% of the US$7 billion in losses brought about by Hurricane Mitch (the most destructive hurricane to hit the Americas in 200 years) was insured. Floods account for 47% of economic losses, but only 11% of insured losses worldwide. This divide is expected to widen as losses mount and insurance companies retreat from disaster prone regions.

Taking the challenge

The World Meteorological Organization (WMO) reports that 1998 was the hottest year since records were first kept. Home grown disasters the size of recent floods and winter storms appear more likely. Good corporate citizens have a responsibility to ensure that the public is aware and that relief agencies have the skills and resources to enter a disaster zone prepared to hit the ground running.

As the primary participants in after-the-fact-clean-up, insurers, government and organizations such as the Canadian Red Cross, need to explore mutual ground where we can reduce the climate for catastrophe, and to minimize the effects that such natural disasters have on the victims. The Red Cross’ Disaster Corporate Partnership Program is an opportunity for insurance companies to cement their positions in corporate social responsibility.