11 // THE DISASTER GAP: HOW INSURERS AND THE CAPITAL MARKETS CAN HARNESS BIG DATA TO CLOSE THE GAP
The Tohoku Earthquake – the most costly natural catastrophe in history – revealed that even in a developed economy such as Japan, earthquake insurance penetration is surprisingly low. “There is a considerable gap between insured and economic losses everywhere in the world, except perhaps for a few countries which have mandatory catastrophe insurance schemes and a well developed insurance industry,” says Eugene Gurenko, lead insurance specialist at the World Bank.
“The level of coverage for cat risk perils varies quite a bit from the level of coverage for basic homeowners’ fire perils, and the numbers are not that encouraging,” he continues. “If you look at California about 15% of homeowners have cover [for earthquake], in Florida it is around 20-25% and Japan is about 15-20%. New Zealand has a cat pool and there the cover was much better because of the compulsory nature of it.”
“In markets where you don’t have the compulsion, penetration for catastrophic perils is very low,” he concludes. “In emerging markets the situation is notoriously bad. According to our research only one to two percent of insurable housing stock is covered in middle-income emerging market countries. Catastrophe coverage is virtually nonexistent in these countries and the question is: why?”
Statistics from Munich Re indicate both the frequency and cost of natural catastrophes have increased over the last three decades. The reinsurer advises caution when drawing conclusions from these trends however, pointing out that many factors can contribute to the trends, including economic development in exposed regions.
“This can have an impact on the number of events as those are always loss events – and a hailstorm that would have hit trees in the past nowadays may damage houses,” points out Munich Re spokesman Michael Able. “And increasing values (at risk) normally go hand in hand with increasing insurance premiums. But we do think climate change also plays a certain role, which has to be a topic for societies and insurers as well.”
CLIMATE CHANGE AND FUTURE CATASTROPHES
Losses from natural and manmade catastrophes are trending upwards. In its fifth assessment, the Intergovernmental Panel on Climate Change (IPCC) says the human influence on the climate system is clear and that human influence has been the dominant cause of observed warming since the mid-20th century. This warming of the climate is likely to influence the frequency and severity of natural disasters and cause more weather extremes in the future.
“Heat waves are very likely to occur more frequently and last longer,” noted the co-chair of the IPCC Work Group. “As the Earth warms, we expect to see currently wet regions receiving more rainfall, and dry regions receiving less, although there will be exceptions.”
Seventy-seven percent of people around the world fear being hit by a natural disaster in the next two decades, and many believe the state would leave them with the bill for damages. This is according to a Gallup survey commissioned by Swiss Re of nearly 22,000 citizens across 19 markets on five continents. Fifty-eight percent think that climate change will contribute to future natural catastrophes.
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