Roads, railways, ports and other infrastructure are the building blocks for long-term economic and social development. They must be constructed – or retrofitted – to withstand natural disasters. This is already happening in some places In Japan, actions to strengthen infrastructure long before the 2011 earthquake and tsunami meant damage to the country's key infrastructure was lower than the outcome of similar events in other parts of the world. This saved lives and reduced some of the economic costs.
Stronger, smarter infrastructure requires investment. As governments struggle with high debt burdens, the funding gap for both revamping infrastructure and new projects – currently estimated at $50 trillion-$70 trillion through 2030 – continues to widen.
Bridging that gap is particularly important for emerging markets, where infrastructure needs are the greatest. As the World Bank noted, the lack of infrastructure comes at an enormous economic and social cost. Over 1.3 billion people – almost 20 percent of the world's population – still have no access to electricity; 768 million people lack access to clean water; and 2.5 billion don't have adequate sanitation.
Tapping into in long-term investors' capital could help. Managing around $27 trillion-worth of assets globally, and with long-dated liabilities, the reinsurance industry is a natural fit. But despite long-term investors' appetite for infrastructure debt, the process remains complex and every project is regarded as unique.
The consequence is predictable: Politicians complain that they can't find investors to build essential infrastructure. Investors complain about the lack of projects which suit their risk-and-eturn profiles. People in developed and emerging markets are left with rundown airports, clogged metro services, and power cuts.
The first step to unlocking long-term investors' funds is to introduce a standardised infrastructure asset class on a global scale. The European Financial Services Roundtable has put forward a template for documentation and disclosure, which could serve as a starting point for a shared public-private sector understanding and good market practice.
Despite the recent global policy efforts, and acknowledgement that a tradable asset class is required, we have not yet seen a great deal of change. Swiss Re is therefore developing an infrastructure tradability indicator – a quantitative tool designed to help investors and policymakers assess the progress achieved and bring infrastructure debt another step closer to becoming a standardised and tradable asset class.
Such an asset class would make the investment process simpler, giving long-term investors more confidence to invest and taking some of the financial load off governments' shoulders.
Ultimately, the flow of funds to infrastructure would create jobs, provide access to food, water and energy and lift people out of poverty. With the world population growing, this has never been more important. The concentration of economic and social assets in metropolitan areas will increase in coming decades and the impact of natural catastrophes will rise even more if we don't prepare now.