Re/insurance plays a significant role in helping communities recover from natural disasters, a new study concludes.Axa XL, in collaboration with the Centre for Risk Studies at Cambridge Judge Business School, released the report, which also outlines the growing economic impact of natural disasters over the past three to four decades.A key finding of the report, titled “Optimising Disaster Recovery: The Role of Insurance Capital in Improving Economic Resilience”, was that each percentage point increase in insurance penetration reduces recovery time by almost 12 months. It also notes that annual average loss from such catastrophes rose from an average of $27 billion in 1970 to 1980 to nearly $200 billion in 2010 to 2019, driven by global economic development and the increasing value of assets in hazardous areas, particularly in fast-growing regions such as Southeast Asia.Other key findings include: • Events in countries with high insurance penetration (3 per cent — 4 per cent including in Western Europe, Japan, Australia, South Korea) have an average recovery rate of less than 12 months and events in countries with very low insurance penetration, such as Bangladesh, Haiti, Nepal, Philippines, have a recovery rate of more than four years. • The US is anomalous — the US enjoys very high insurance penetration of more than 4 per cent, but the fragmented nature of coverage, particularly flood, disaster response and scale of loss has resulted in a recovery rate average of just over three years. Examples include hurricanes Andrew (1992), Katrina (2005) and Sandy (2012), and the Great Mississippi and Missouri River Floods (1993). • The quality of recovery for very high and high insurance penetration countries is better than pre-loss levels, and the reverse is true for countries with lower insurance penetration although the differences are quite small. There is potential for product development in terms of “building back better”. • Economic recovery is faster than societal recovery in almost 60 per cent of the cases and is particularly pronounced in the first six months. The standouts are German flooding in 2013, with more than 600,000 affected and 80,000 displaced people recovering to economic and societal norms within 12 months, and Haiti suffering an earthquake in 2010 from which it has yet to recover. The report also looked at the value of risk mitigation measures and found it pays to prepare. Every dollar spent on mitigation saves at least $4 in future disaster costs, the report found.Jonathan Gale, Axa XL Reinsurance chief underwriting officer, who spearheaded the report’s sponsorship and wrote the foreword, said: “Putting communities impacted by disasters back on their feet as quickly as possible, and in a better state, is just one example of how we make Axa’s purpose to ‘act for human progress by protecting what matters’ a reality. The case for re/insurance is clear but is seldom adequately explained. “We wanted to bring out comparative information related to speed of recovery — how quickly employment and productivity returns to normal, and how quickly people are back in their houses and power is restored. “We also wanted to focus on the quality of recovery, that is whether the post-disaster normal is better than the pre-disaster state in terms of the economy and the resilience of the community to future events from the perspective of infrastructure and economic resilience. “This report shows pre-disaster financing, predominantly re/insurance, with the ability to channel significant funds instantly and without recourse as the single biggest solution to catastrophic events.” Daniel Ralph, professor of operations research at Cambridge Judge Business School and academic director of CCRS, said: “This project provides much needed quantification of resilience and recovery after natural catastrophes, as much of the ‘evidence’ to date has only been anecdotal. “With climate change events, including floods and storms, increasing in frequency, it is more important than ever to understand the levers of recovery for communities and companies. “The report looks mostly at vulnerable communities, but there also are clearly lessons for corporates in terms of preparing for catastrophe, investing in ways to recover more quickly, and more effective decision-making and implementation if disaster strikes. “Assessing the impact of surprises requires effort in delineating the kinds of surprises that are possible, and then stress testing your organisation across the gamut of those events — stress-testing via scenarios is the key to planning for surprise.” The report is the culmination of a multiyear series of disaster recovery studies, as part of work to understand the insurance protection gap, undertaken by CCRS in collaboration with Axa XL Reinsurance over the past decade. The next phase of the collaboration will involve developing an online database that will be accessible worldwide and contain the research to date and over time expanding the database with additional case studies and related information. • The full report can be seen on this webpage under the heading of Related Media