Latin America and the Caribbean is one of the regions most impacted by natural disasters: earthquakes, hurricanes, droughts, floods, heavy rains... Between 2020 and 2022, there were 175 natural disasters in Latin America and the Caribbean, according to the Global Assessment Report published by the United Nations Office for Disaster Risk Reduction (UNDRR), where the number of disasters is also projected to reach 560 per year, or more than one natural disaster per day, by 2030.
Given this context, and within the framework of the World Day for the Prevention of Natural Disasters (October 13), the Global Risk Report 2022, published by the World Economic Forum and Marsh Mclennan, is once again relevant, where Latin American companies agree in which the main threat to their businesses in the next ten years is the occurrence of extreme weather events.
And the cost of these natural disasters is truly staggering. More than 10,000 lives in 2021 and material losses worth $280 billion, of which approximately $120,000 (43%), were covered by (re)insurance, according to Guy Carpenter, global risk and reinsurance leader.
Understanding ESG risks for disaster prevention
The risks related to the Environment and Climate Change, the E of the ESG principles, are those that directly affect the sustainability of companies, understood as the ability to maintain themselves for a long time without depleting resources or causing serious damage to the environment (RAE ). The potential impact of “E” risks includes not only those derived from increasingly intense natural disasters, but all those associated with the energy transition and a strengthened social awareness of its commitment to the protection of natural resources.
“Despite the growing interest in governments around the world to place it on the public agenda, and the scientific evidence on the impact of human activity on climate change, the reality is that environmental risks are not being correctly identified or quantified, therefore, the resilience and response capacity before crises is, in general terms, very limited”, comments Gerardo Herrera, regional leader of ESG Risk and Risk Consulting for Marsh Latin America and the Caribbean. “The path to true sustainability is not possible without proper management of “E” risks, he adds.
Sustainability and mitigation key: public-private collaboration
The ability to anticipate, prevent, protect and respond to catastrophic events must be part of the commitment to global sustainability, and a priority objective for governments and the private sector. “Small businesses, big industry, governments, people… none of us can face these catastrophes alone. That is why collaboration is more necessary than ever. We are convinced that a appropriate distribution of risk between policyholders, re/insurers and States, is the best response to these risks”, clarified Herrera.
Marsh McLennan, a leading global risk, strategy and people firm, has been promoting this public-private collaboration for 40 years, developing tools and solutions capable of mitigating and better managing these catastrophic and complex risks, which have been shown to be especially effective for earthquakes, floods, hurricanes and terrorism, among others. All these mitigation solutions facilitate:
Access to capital and insurance coverage for companies and individuals
Insurers' access to new reinsurance schemes
Return on investment, by providing greater confidence to the capital market
Implementation of better prevention and risk understanding/modeling measures
Backing of part of the losses (in a more or less limited way) by governments.
