This article explores key insights from the PARIMA Mumbai 2024 event, focusing on building resilience against climate change and natural catastrophes. Drawing from expert panel discussions, it delves into the complexities of risk management in today’s interconnected world, highlighting challenges faced by organizations and innovative approaches to risk financing. The piece offers valuable perspectives for risk managers and insurance professionals in India.
यह लेख PARIMA मुंबई 2024 कार्यक्रम से प्राप्त प्रमुख अंतर्दृष्टि का पता लगाता है, जो जलवायु परिवर्तन और प्राकृतिक आपदाओं पर केंद्रित है। विशेषज्ञ पैनल चर्चाओं से, यह आज के परस्पर जुड़े विश्व में बीमा की जटिलताओं में गहराई से जाता है, संगठनों द्वारा सामना की जाने वाली चुनौतियों के नवीन दृष्टिकोणों पर प्रकाश डालता है। यह लेख भारत में बीमा पेशेवरों के लिए मूल्यवान परिप्रेक्ष्य प्रदान करता है।
Introduction
On June 14, 2024, I had the privilege of participating in a panel discussion at the PARIMA (Pan-Asia Risk and Insurance Management Association) Mumbai Event. The topic, “Breaking Resilience against impact of climate change and natural catastrophes,” couldn’t be more relevant in today’s world. As historian Will Durant aptly put it,
Civilization exists with geological consent. Subject to change without notice
This sentiment resonates deeply in our current global context, where climate change and natural catastrophes have become commonplace. In India, natural catastrophes rank among the top three risks faced by most organizations.
The Changing Landscape of Risk
As a risk manager, I’m often asked about the major challenges in managing climate change and natural catastrophes. The complexity of this task is magnified in a diverse and dynamic country like India, especially for organizations with a global presence. Here are the key challenges we face:
Increasing Complexity of Business Models
- Modern businesses incorporate various technologies and processes
- Interdependencies make predicting climate change impacts difficult
- A single point of failure can lead to significant disruptions
- Example: The semiconductor shortage affected multiple industries
Global Supply Chains
- Natural catastrophes in one part of the world can have far-reaching impacts
- Examples: Kerala flood (2018), Cyclone Amphan (2020 ), Cyclone Biparjoy (2023)
Understanding Exposure
- Identifying vulnerable assets and operations is crucial
- Requires thorough analysis of the entire value chain
- Challenges in gathering and analyzing data due to dynamic nature of risks
- Example: 2015 Chennai floods highlighted urban infrastructure vulnerabilities
Proactive Preparation
- Developing strategies to mitigate risks before they materialize
- Investing in resilient infrastructure and diversifying supply sources
- Creating robust contingency plans
- Example: Infosys investing in green buildings and sustainable practices
Risk Financing
- Securing adequate financial resources for recovery
- Balancing preventive measures and recovery reserves
- Negotiating with insurers and stakeholders
- Gaps in coverage and affordability in the Indian insurance sector
On-Ground Preparation: Lessons from Experience
While data and information are crucial starting points, on-ground preparation is paramount for minimizing the impact of natural catastrophes. As a representative of a large publicly listed food and beverages FMCG organization in India, I can share some insights:
Risks Faced On the Ground
- Supply chain disruptions
- Damage to manufacturing facilities
- Contamination of raw materials
- Examples:
- 2021 Maharashtra floods disrupted transportation networks
- 2020 Cyclone Nisarga threatened production units along the western coast
Challenges in On-Ground Response
- Slow response time due to lack of real-time information or decision-making delays
- Inadequate awareness and training among on-ground personnel
- Example: Initial lapses in COVID-19 safety protocols led to outbreaks within facilities
Proactive Preparation Strategies
- Regular training sessions for employees
- Conducting mock drills
- Establishing clear communication channels
- Investing in resilient infrastructure
- Example: Post-2020 Assam floods, our organization instituted regular disaster preparedness drills
Risk Financing Methods for Natural Catastrophes and Climate Change
As a corporate Risk Manager, I utilize various risk financing methods to manage the impact of natural catastrophes and climate change:
Insurance Coverages
- Property Insurance
- Business Interruption Insurance
- Supply Chain Insurance
- Liability Insurance
Alternative Risk Transfer
- Parametric Insurance
- Catastrophe Bonds
Addressing Emerging Risks
- Externalities (e.g., regulatory changes, increased operational costs)
- Global Supply Chain Disruption
- International Sanctions
Proactive Preparation
- Regular Risk Assessments
- Collaboration with Insurers
- Investment in Resilience
Takeaways : Navigating Climate Change and Natural Catastrophes
- Comprehensive risk assessment is crucial in today’s complex business environment
- Flexible and adaptive strategies are necessary to address the unpredictable nature of climate-related risks
- Proactive preparation and investment in resilience can significantly reduce the impact of natural catastrophes
- A combination of traditional insurance and alternative risk transfer mechanisms provides robust financial protection
Conclusion
Managing the risks associated with climate change and natural catastrophes requires a multifaceted approach. By understanding the complexities of our business models, global supply chains, and specific exposures, we can develop more effective risk management strategies. Proactive preparation, on-ground readiness, and innovative risk financing methods are key to building resilience and ensuring long-term sustainability in the face of these growing challenges.
