Bermuda plays a pivotal role in closing a climate-induced protection gap, experts said at the PwC Insurance Summit.

According to a Swiss Re Sigma report, only 45 per cent of global economic losses due to natural disasters, such as hurricanes and floods, were insured in 2022.

Since 1997, Bermuda companies have paid out over $400 billion to the North American market for losses, said Axa head of climate Andrew MacFarlane.

“That is a lot of money going directly to paying losses, rebuilding communities and people's lives,” Mr MacFarlane said at the PwC Insurance Summit. “Bermuda has this history of punching way above its weight.”

Speaking in a panel on climate change and the future of insurance, Bermudian executive Gino Smith said Bermuda is where the “smart money” is.

“This is where the data analytics are,” said Mr Smith, former head of property, Europe, Middle East, Africa & Latin America at Axis Re.

However, Jeffrey Manson, Renaissance Re senior vice-president of global public sector partnership, said the industry will not close the protection gap until it closes the knowledge gap.

“There is a basic lack of understanding,” Mr Manson said.

However, he said there is a lot of work being done on developing open source modelling platforms and developing an ecosystem around that, where this knowledge is shared in the insurance industry.

He pointed to a group called the Vulnerable 20, or V20, as an example of where this is happening.

This group of 58 countries, including Afghanistan, Bangladesh and Barbados is partnered with the United Nations and supported by the World Bank.

“That is really exciting to see the traction that those efforts are achieving with the demand side of the global set-up,” Mr Manson said. “They have all said we want access to that risk knowledge that the insurance industry has.”

This knowledge could be used to make better informed decisions about things such as land use, planning and change.

“We need to be thinking about what areas are no longer sustainable from an elevation perspective,” Mr Manson said. “We cannot continue to build on coastal areas that are vulnerable to sea-level rise.”

Mr Smith said one of today’s challenges is mitigating damage when storms are intensifying more quickly.

He pointed to Hurricane Otis in Mexico, as an example. Last month, it changed from a tropical storm to a Category Five hurricane within 24 hours, killing 27 people and causing billions of dollars in damage.

“In Bermuda, we usually get two or three days warning of a hurricane which gives us a chance to mitigate loss by doing things like boarding-up our homes,” Mr Smith said.

“This was a situation in Mexico where that did not occur. Imagine from an insurance pricing perspective, trying to get that right. Before, you could put factors in place to mitigate loss; now you cannot.”

He said different risk carriers have different ways of thinking about risk.

“It is a complex problem, but rest assured, Bermuda is a place that can solve that problem,” Mr Smith said.

Mr MacFarlane said in the last few years large humanitarian organisations have been trying innovative solutions. The Red Cross is now using catastrophe bonds to finance refugee and migration response, and the United Nations Children’s Fund is also exploring insurance linked securities.

“They are starting to recognise that risk transfer has a very important role in helping to increase the actual impact that those funds will have after events,” Mr MacFarlane said.