10 // THE DISASTER GAP: HOW INSURERS AND THE CAPITAL MARKETS CAN HARNESS BIG DATA TO CLOSE THE GAP


2. MIND THE GAP


There is often a startling gap between the economic losses and insured losses when catastrophes occur. Looking at statistics for catastrophes in 2012 the total economic loss from disasters reached $160bn, according to Munich Re. But just $65bn of that total was covered by insurance. Widespread floods in Central Europe, Alberta and more recently in Colorado have threatened to rival 2011 in insured flood losses, but this is still only a small margin of total losses.


“There is a considerable gap between insured and economic losses everywhere in the world.”


Eugene Gurenko, lead insurance specialist at the World Bank.


Even in the US, flood is an underinsured peril. Cat modelling company Eqecat estimates economic losses from the Colorado floods in September 2013 will amount to $2bn, but very little of this is insured. And homeowners are unlikely to get relief from the US National Flood Insurance Program as most areas impacted by the Colorado floods are not within the defined flood zones.


If you look beyond the mature insurance markets to the emerging markets it is clear the disaster insurance gap is widest there. 2011 was a record year for natural catastrophes, with Asia Pacific accounting for two thirds of total losses, including events such as the Tohoku Earthquake and Tsunami, the second Christchurch Earthquake and the Thai floods.


Globally, these disasters cost the industry over $105bn (according to Munich Re). However, with overall economic losses estimated at around $380bn, insurance covered less than a third of the total and there was an insurance shortfall of $275bn globally.


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