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Comprehensive risk management to inform decision-making and action for resilience

Source(s):  InsuResilience

As climate change exacerbates the frequency and intensity of extreme weather events around the globe, countries can no longer afford to deal with the consequences of natural shocks only after they have occurred. More often than not, the financial impact of natural hazards exceeds the costs of investments that could have been made to protect people and economies beforehand. Accordingly, potential impacts need to be reduced as much as possible prior to the occurrence of extreme weather and other natural hazards, while also preparing to respond to the impacts which simply can not be avoided.

Integrating adaptation, disaster risk reduction, management and response

Comprehensive Risk Management (CRM) responds to this need by integrating adaptation, disaster risk reduction, and disaster risk management. As such, it is both, a conceptual lens for identifying and planning activities, as well as an integrated set of actions that improves resilience. CRM, therefore, brings together a wide array of stakeholders, including government planning bodies, private sector, civil society, and development agencies to ensure effective and efficient use of knowledge and resources.[3] Its building blocks consist of the phases of planning, preparing, and responding. In reality, these phases can, however, also overlap.

At the heart of CRM lies the prevention phase, for which comprehensive risk assessment is key. It is only when the underlying root causes of vulnerability are properly identified, understood, and combined with exposure assessments, that effective measures can be taken to build resilience. These entail a broad portfolio of adaptation and risk reduction measures, including investments in climate-proof infrastructure, legislative interventions, and risk communication and awareness-raising. The residual risk, which can not be addressed through adaptation and risk reduction, will then be managed as part of the retention and transfer, preparedness, and response phases.

In most cases, addressing residual risk as part of the retention and transfer phase, requires implementing risk financing mechanisms alongside legislative interventions that allow these mechanisms to function. Hereby, certain risk types may be retained through disaster contingency funds, reserve funds, or budget reallocations, while others may be transferred through insurance products, sovereign risk pools, social protection, or catastrophe bonds.

Moving into the subsequent preparedness phase means leveraging risk assessments to anticipate potential impacts and taking actions instrumental in reducing the number of lives and resources lost. The phase is important, since thorough preparedness reduces the financial burden on the retention and transfer phase, potentially freeing up resources for investments in resilience and prevention. Actions enhancing preparedness include both ‘preparing now‘, for example by setting up early warning systems, as well as putting in place response plans to be ready once an event strikes.

The response phase focuses on the period immediately after the occurrence of an extreme event and operationalizes measures supported through access to risk finance. These include immediate life-saving interventions as well as the short and medium-term provision of relief and supply services. Lastly, the recovery phase focuses on re-building, specifically by ‘building back better’. This should encompass the reconstruction and improvement of both physical infrastructure and livelihoods, including by addressing underlying vulnerabilities linked to inequality and marginalization due to gender, ethnicity, age, education and the like.

Resilience is multi-dimensional and can be interpreted as a function of exposure, natural assets, economic assets, human assets, and social assets. While the rising occurrence of extreme weather and other natural hazards can be addressed through emissions mitigation, resilience needs to be enhanced by addressing vulnerability and the lack of sufficient assets to manage exposure. It is instrumental to focus on risk assessments that uncover the interplay of underlying socio-economic conditions. Therefore, CRM, despite its focus on climate/related risks, can also provide important insights for other shock responses. Currently, the COVID-19 crisis demonstrates how human, social and economic characteristics like ethnicity, income, and education determine the extent to which people and countries suffer from the global pandemic. The present situation hence offers an opportunity for honest discussions about the systemic shifts needed to address underlying causes, rather than symptoms, and to put an end to marginalization and discrimination hindering resilience.

Moreover, CRM can enhance countries’ understanding of the resilience investments needed to ensure economic growth and development. Particularly for vulnerable countries, where the impacts of climate change can no longer be neglected, Nationally Determined Contributions (NDC) under the Paris Agreement represents a blueprint for long-term economic development and the associated investment strategies. Several vulnerable countries, including almost half of the V20 membership, commit themselves to increase resilience through their NDCs[6]. In order to fully take advantage of the ongoing NDC enhancement, countries need to understand their resilience baselines and targets and quantify the monetary costs of the corresponding losses and investments. Integrating CRM considerations into the resilience planning process can help to achieve these objectives: While risk assessments can shed light on the underlying, multidimensional forces undermining resilience, risk financing, and specifically insurance, can contribute not only the necessary data but also the costs of action and inaction by putting a price tag on risk. Currently, however, such knowledge remains mostly siloed in the private insurance sector. By continuing to bring together practitioners from various fields, CRM can help to break these silos and support countries in unlocking truly transformative social and economic change.



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  • Publication date 29 Jun 2020

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