Home / This Week / Cover Stories / Ocean risk and insurance: an emerging new development paradigm of the blue economy

Ocean risk and insurance: an emerging new development paradigm of the blue economy

Nationwide campaign of Bahria University to promote Blue Economy

Economists hold that trade deficit in the long run can drag-down economic growth of any country.

As globalization provides countless opportunities for international trade meanwhile numerous commercial and political risk are there too in carrying out cross-border trade. Pakistan is facing the persistent trade deficit since independence . In addition to this war on terror and poor law/order situation, the risk of theft/damage/lost during the cross border trade has increased dramatically. To hedge these risks, companies insure themselves under different private and government insurance policies.

Economists hold that trade deficit in the long run can drag-down economic growth of any country.

As globalization provides countless opportunities for international trade meanwhile numerous commercial and political risk are there too in carrying out cross-border trade. Pakistan is facing the persistent trade deficit since independence . In addition to this war on terror and poor law/order situation, the risk of theft/damage/lost during the cross border trade has increased dramatically. To hedge these risks, companies insure themselves under different private and government insurance policies.

In today’s globalized world, maritime trade plays a pivotal role as it supports, transforms and connects societies worldwide. Scope and scale of maritime trade, which accounts for around 80% of global trade by volume and 70% by value that’s why the prosperity of many countries is closely related to the seaborne trade and their dependence on the free passage of goods through oceans holds the key for trade oriented economic structure and the new emerging development paradigm of the Blue Economy. It includes Ocean Economy, Green Economy, Coastal Economy and Marine Economy which ensures greater potential for higher and faster GDP growth scale.

The growing importance of the blue economy at global, regional and national levels, combined with its dependencies on marine ecosystem services, its changing investment strategies and the value of assets in different parts of the economy but investment in the blue economy also involves ocean risks so, there is a need to incorporate appropriate insurance policies into investment strategies. Insurance solutions to ocean risk will affect economies and require novel forms of insurance. In addition to insurance products for loss of ecosystem services, there is an immediate demand for more standard products based on physical assets. To conceptualize a business development approach for insurers, a two-dimensional space is a convenient way to classify the range of potential insurance solutions associated with ocean risk and the innovation required.

 

Below diagram will show that, One axis depicts the market continuum between developed and developing countries, the other the continuum between the more familiar physical impacts of ocean warming (such as SLR, ocean currents or weather events) and the impacts on ecosystem services, at the other end of the spectrum and the ocean risk will provide insurers with opportunities for new products in the ocean risk ‘space’. A variety of insurance products exists or could be designed for each quadrant, and the individual preferences of insurers will guide the choice of one or more quadrants as a focus for business development.

Public–private partnership insurance resilience

uroojpic2

FUND for Blue economy Ecosystem services, Premium Payouts Regulation Science, observation, Maintenance, restoration Maintenance fees ECOSYSTEM Government Regulation International organization STRUCTURE OF RESILIENCE FUNDS IN DEVELOPING COUNTRIES FOR SUSTAINABLE ECOSYSTEM SERVICES OCEAN RISK INSURANCE Conceptual diagram illustrating the continuum of ocean risk insurance products based on a country’s development level and the type of insured asset. Each quadrant represents a different business segment with different risk transfer solutions. The diagonal provides a very general sense of the opportunity stage and innovation needed for products in each sector. An emerging trend in international development policies is the inclusion of risk transfer mechanisms for extreme events in developing countries.

The insurance industry can support risk transfer in developing countries and play a critical role in increasing large-scale global resilience by offering innovative insurance solutions. Solutions could involve public-private partnerships (PPPs) at a sovereign level via multinational climate change agreements, or through other arrangements that increase resilience to cascading effects of ocean warming and climate change. International organizations (e.g., United Nations, World Bank, etc.), which support development and climate change adaptation in developing countries, are increasingly highlighting the effectiveness of insurance for financial resilience and post-disaster recovery of economies while there is an important role for risk mitigation through emission reduction and climate adaptation, it is becoming increasingly clear that risk transfer solutions for unavoidable risks enhance the resilience to disasters in developing countries. If those risk transfer solutions are designed to protect and restore ecosystems at risk, they can themselves become a strategy for adaptation and mitigation. The attempt to close the insurance protection gap is an important global effort, and it needs to be recognized that for many developing countries a focus on protecting the blue economy is a critical component of this effort. Developing a risk transfer mechanism for marine ecosystem risk is particularly relevant for countries where the blue economy contributes a high percentage to the GDP.

Urooj Aijaz 1-3

The lack of a corresponding risk transfer mechanism leaves a gap in the resilience-building strategies for countries with relatively large coastal areas, as marine ecosystem services often make significant contributions to their economies. As the marine ecosystems that provide these critical services are changing, these economies are increasingly at risk of failure, with potentially severe consequences for hundreds of millions of people. Apart from mitigation and adaptation, there are two insurance options to reduce the risk in affected countries that can be used in combination increase the use of insurance by the population and the blue economy for extreme events in marine environments insure the restoration of ecosystems that provide critical ecosystem services while the former would be a more traditional insurance approach so, it is concluded that, marine insurance provides a comprehensive coverage and compensates businesses against any possible loss suffered in the transit of goods. Marine insurance thus helps in maintaining the financial stability of companies and reduces their risk of trade and marine insurance policy will provide us all-round coverage against a wide variety of risks faced while at sea, offer claim survey assistance worldwide, along with claim settlement assistance and offer a variety of options and plans under marine insurance policies covering cargo insurance which covers the goods which are being transported, ‘hull insurance’, which covers the body of the ship and the ‘freight insurance’, which covers freight charges for non-delivery of goods along with the other different tools to facilitate trading so, there is a high time to invest in this untapped sector of Pakistan through better economic and insurance policies which not only reduce the risk of trade and encourage investors to utilize it fully and guarantees economic prosperity.

Check Also

An undivided GCC is in Pakistan’s favor

An undivided GCC is in Pakistan’s favor

In June 2017, Saudi Arabia, the UAE, Bahrain and Egypt broke off diplomatic and transportation …

Leave a Reply