More needs to be done to close the insurance protection gap for natural catastrophes, writes Swiss Re Asia-Pacific chief executive Fred Kleiterp
Losses from floods, storms, earthquakes and other natural catastrophes can have a dramatic impact on the citizens and economies of entire countries.
Although insured losses from natural catastrophes were lower in 2014 than in recent years, the number of events was among the highest ever recorded. The expectation is that, as a result of climate change, extreme weather events like hurricanes and floods will increase.
Cities are becoming larger, attracting more people and sparking infrastructure growth, and climate change. When a natural disaster strikes, the dense population and asset concentration leads to losses. These losses can severely impact not only a country’s economy, but the people who live there.
Swiss Re’s recent sigma report notes that in the past decade, total economic losses from natural disasters have averaged $180bn annually. Of that number, nearly 70% ($127bn a year) of those losses were uninsured.
There is a substantial natural catastrophe property protection gap worldwide. This gap has grown steadily over time. With urbanization leading to increased property development in cities worldwide, there are many highly concentrated pockets of exposure across the globe.
This is especially true in Asia-Pacific. Growing economies, increased wealth and the accumulation of high value assets and commercial risks along coastal areas and in disaster-prone regions are all driving increases in risk exposure.
Despite these threats, underinsurance is still a significant concern in the region. In the past 10 years, uninsured losses from storms, floods and earthquakes made up 85% – 100% of all economic losses in Asia’s emerging markets.
The task of effectively reducing and financing catastrophe risk requires a combined response from the private and public sectors. The public sector plays a key role in setting a legal and regulatory framework that enables the development of a private insurance sector, while private insurers need to develop appropriate risk transfer solutions to absorb and manage those risks effectively.
By financing measures to mitigate disaster risks, we can strengthen the resilience of businesses, local and national economies, and societies. As insurance puts a price tag on risk, it helps to create an incentive to invest in prevention measures.
Understanding natural catastrophe risks and the impact of climate change is critical to cost Swiss Re’s business accurately and to structure sound alternative risk transfer solutions. It’s one of the reasons we invest in research, like our latest sigma report ‘Underinsurance of property risks: closing the gap’.
By sharing this knowledge, we help our partners to identify cost-effective measures to protect themselves.
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