Resilience is the buzzword of 2020 and it is fascinating how some respond to what life throws at them; and how that will translate to corporate world.
So what is resilience? well it could be looked in the following 2 ways:
- Resilience is a reactive state of mind created by exposure to suffering.
- The more tangible the threat, the more resilient we become.
Resilience is also defined “the ability to prepare and plan for, absorb, recover from and more successfully adapt to adverse events” and in 2020 this has become an objective at a government level across the globe.
Financial resilience in respects of preparing for disasters can be seen in two ways, one the amount of damage sustained and the second is speed of recovery. Insurance can improve both areas of financial resilience.
Insurance payouts speed recovery by making more funds available more quickly than relying on governmental disaster aid. Insurance can also indirectly reduce damages by encouraging investments in risk reduction prior to a disaster.
So how can the insurance industry help build a more resilient post COVID 19 world?
One of the ways of doing this is for insurance companies to work alongside governments, increasing awareness, access to cover and affordability of insurance to both individuals and businesses.
The insurance industry can also contribute its loss assessment, claims management expertise and payment infrastructure to channel compensation effectively to entitled people and businesses.
An example of this can be found in North Carolina. This area sits right in the path of a lot of hurricanes. And things have got so bad there that a few years ago the whole general insurance industry wanted to pack up and leave and if not, then completely exclude any storm, flood or wind damage. This would have meant hundreds of thousands of people and business owners would no longer be covered for the biggest risk they faced every hurricane season.
So, with some encouragement from the local and federal government went about forming a non-for-profit insurance company called the North Carolina Insurance Underwriting Association. Now the benefits that came from that where much better than just been able to take out an insurance policy.
They worked out that most claims resulted from in adequate roofing structures. They worked out for approx. $4000 – $6000 AUD you could reinforce a roof to significantly reduce of damage from a roof falling off. So they decided to offer policy holders two benefits, 1stly after a claim they would pay the extra amount to have a better roof put back on the house to avoid a future loss. But the big idea, was just to give people the money upfront and before the hurricane so they could avoid having the claim in the 1st place, what a great idea…
So right now we live in (as your probably have heard a million times this year) unprecedent times. The world we knew is no more, and the next decade or so could be as turbulent as the last 12 months. What is the insurance industry doing to keep up with this change? Well they are so worried about the impact of climate change they are paying for people in some parts of the world to keep coral reefs and mangrove swamps to reduce the impact of hurricanes and floods on developed and low-lying areas.
How could this example work in Australia? Working on a preventive rather than reactive basis, insurance companies could assist by providing free or heavily subsided PPE or training to reduce work place accidents by significantly cut back the number of claims. By creating a safer worker environment, it could also impact people’s sense of well-being which would have a great impact across the community as a whole
And we all know Natural disasters are here to stay. Investment from the insurance industry along with the government to prevent loss could mean further investment into rural fire management, improved building codes and the retrofitting of measures to protect property from fire, storm damage and thefts and riots in the future.
The insurance industry plays a vital role in both the local Australian business environment and global economy. It will remain so by providing protection against known risks. However, we must remember that insurance companies are only as strong as their balance sheets and while due to regulations these remain for now robust, they are not unlimited
The important thing now is to learn and act. This pandemic is revealing what’s to come with other universal risks and the industry will need to continue to work together with governments and our customers to ensure the world is more resilient the next time disaster strikes – whatever form it takes.