As we prepare for the Baden Baden conference of this year, I've been thinking about how much we have advanced as an industry during 2016 in carrying out one of our most important tasks: closing the nat cat protection gap. While we still have work ahead of us, there are a few meaningful signals that we are starting to reinvent ourselves as it is needed. "Reinvent" is a strong word, but I think it is apt in this case. Since 70% of the global total economic losses due to natural catastrophes over the last 10 years have been uninsured, I would argue that the industry has only fulfilled its role to a very limited extent. To better accomplish our task, I believe that the insurance industry needs to dramatically reinvent itself by changing its business model's starting point. We should first explore and seek to understand the customers' needs, and then create the solutions they demand.
The difference between economic and insured losses, what we call the "nat cat protection gap" is a major concern for societies in a world where losses from natural catastrophes are surging in frequency and severity. In Europe, only 34% of the $204 billion of nat cat losses during the past 10 years have been insured.  That means that on average, $13.5 billion in damages caused by Earthquakes, Wind and Floods had to be borne by society every year. This is a figure larger than the GDP of Albania in 2015.
This protection gap is composed of many different pieces: uninsured public assets, funding for emergency response costs, foregone revenue, uninsured private assets, etc. and each of these categories call for specific solutions. Uninsured private assets are properties that citizens like you and me have decided –actively or passively- to maintain without coverage. There are six major factors that play a role in determining insurance penetration: risk awareness; understanding of available insurance products; availability of the coverage; ease of accessing these products; a favorable cost benefit ratio, which allows the product to appear affordable; and, finally, trust in insurance vis-á-vis its substitutes, like societal networks, or public aid.
We should consider redefining our product offering in order to focus on the consumer experience: we cannot continue selling only what we have been covering historically. Instead, we should start by covering what consumers want to protect, risk-transfer solutions that start at the needs of the customer. As the desire for holistic covers becomes more and more common, we need to become better at understanding the consumers' needs and wishes and model these better in order to price the risk in an attractive way. These new-generation-policies should be contracts which are clear and straightforward: "small print" is increasingly unacceptable in the digital era. The value of these products needs to be better communicated, thereby showing people that the face value premium of the contract does not represent the whole picture.
The current protection gap is dangerous – many countries are at risk for major natural catastrophes that they cannot endure without major economic hardship. The insurance industry cannot solve this alone: governments need to insure their assets and pre-finance disaster relief, but they must also enforce zoning and building standards that minimize risk and develop a regulatory environment that allows for an efficient risk transfer to insurance companies.
At Swiss Re we have the financial strength and the knowledge-base to respond to this challenge. We are committed to closing the natural catastrophe protection gap by collaborating with our clients to develop solutions covering a wide range of natural catastrophes, sharing our experience and lessons learnt from other markets to adapt them to the local realities. This is a significant business opportunity, and more important, it is an opportunity to improve the resilience of our society. Are you ready for this task?
 2006-2015 Nat Cat losses. Sigma database.
Category: Climate/natural disasters: Disaster risk, Earthquakes, Floods/storms, Resilience