Tuesday, March 13, 2012

Asian Development Bank: "ADB climate migration report recommends catastrophe bonds, weather derivatives and index-insurance"

This is, as the saying goes, smack dab in the center of our wheelhouse.
From last year's '"Geek Farmers Gamble on Global Warming' (GOOG)":
...In Tuesday's post "Google Ventures' next big bet: Weather insurance (GOOG)" I said:
We had a few mentions of  WeatherBill early in this blog's life but I couldn't figure out how to make money off their output, it looks like a product made for selling, not for buying....
I purloined the "product made for selling, not for buying" bit from an insurance man who evaluated every insurance product on the basis of whether he would use it to insure his own business or if he would underwrite it for his agents to sell. A very handy mental map....
From Artemis:
The Asian Development Bank has published a report today on the topic of climate change, adaptation and the expected surge in migration that the variations in our climate will likely cause. The report, titled Addressing Climate Change and Migration in Asia and the Pacific, highlights that 42 million people in the region were displaced by environmental disasters in the last two years alone. An undetermined number of those people became migrants due to either being unable to return to their homes or choosing to move to safer locations.

“The environment is becoming a significant driver of migration in Asia and the Pacific as the population grows in vulnerable areas, such as low-lying coastal zones and eroding river banks,” said Bindu Lohani, ADB’s Vice President for Knowledge Management and Sustainable Development. “Governments should not wait to act. By taking steps now, they can reduce vulnerability, strengthen resiliency, and use migration as an adaptation tool rather than let it become an act of desperation.”

The report identifies likely policy responses to the growing problem and looks at issues such as infrastructure, education, sanitation, healthcare, resilience and improvement of disaster risk management systems. It also discusses possible mechanisms for funding climate-induced migration and discusses risk transfer tools which can help to offset the costs of these climate and weather disasters....MORE
HT: FT Alphaville who either takes a more benign view of insurer venality* or sees a need for the risk transfer while acknowledging this is definitely not your plain vanilla P/C. and who writes:

Sea-level bonds
...Given all those mega-cities of migrants springing up on Asia’s coasts though, the risk transfers might be on another scale entirely one day…

Update – Well, that’s the idea above, anyway. But is it “quite feasible” as the ADB says? In terms of getting the technicals of the product down pat, well why not. But thinking about it – you (as the insurer) would be selling insurance on a potentially massive, truly systemic risk here. Something that could – over time – remove island nations from the map altogether. Not something you can hide from behind the law of large numbers, quite possibly.
Don't tell Ajit Jain, his boss is already rich enough.

*Via last year's "Swiss Re Warns Europe of Increasing ‘Soil Subsidence’ from Climate Change'":
See also our post from a couple weeks after the monster 8.8 magnitude Chilean earthquake in February 2010:
"No Surprise: Chile Leads to Reinsurance Rate Increase Debate" BRK-A; BRK-B
No kidding.

A brisk breeze gets the boys in Omaha, Zurich, Munich and London (Lloyds) talking about premium increases.

Not to mention the herverzekering crowd in Amsterdam, they're tough bastards....