Water risks constitute major challenges – both in terms of threats and opportunities – for society as a whole, and for the re/insurance industry. Yet, they are widely underestimated, disregarded or simply ignored.
With its new Position Paper on Water Risks, the Emerging Risks Initiative (ERI) of the Chief Risk Officer (CRO) Forum has aimed at synthesizing what water risks represent for the reinsurance industry in terms of scarcity, pollution, health, treatment, conflicts, regulatory and reputational risks.
Water risks are complex to assess. Such difficulty stems from the paradoxical nature of water: it is plentiful to many yet its scarcity affects hundreds of millions of people, it is both fossil and renewable, it is freely supplied by nature but its treatment, distribution and wastage have a cost.
This results in a global lack of preparation for future impacts and has implications for the re/insurance industry, as a majority of water risks represent externalities which are not properly priced or assessed.
By 2050, the world’s population is expected to reach 9.7 billion. It will reach 11 billion by 2100. All these people will need water to meet their most basic needs.
Using their expertise in risk management, re/insurance companies can contribute to assessing water risks and promoting awareness of the risks and their consequences. Local actors seeking insurance could be encouraged towards long-term planning and to use new technologies or water-monitoring devices to ensure better understanding of their water supplies. New considerations in underwriting could also be directed to favour businesses with efficient water management.
The re/insurance industry represents substantial investment capacity over the medium and long term. It may provide strong leverage to promote promising or sustainable water projects and investments. It could also use its influence to encourage major infrastructure projects to minimise the impact on water supply and usage.
The entire extent of impacts from water risks on the re/insurance industry is still difficult to assess, nonetheless the vulnerability is already here. With such levels of uncertainty and potentially large impacts, water risks are a major emerging risk for the re/insurance industry and for global society.
Summarized in instructive and simple terms, illustrated with many practical examples, this paper is a contribution to the CRO Forum’s goal of providing best practice in risk management to advance business. In line with earlier papers by the ERI, this publication is a further demonstration that the re/insurance industry is concerned and strives to stay abreast of key social, climatic and technological evolutions.
The CRO Forum
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