Currently showing: Climate/natural disasters > Earthquakes

11 Apr 17 14:56

As representatives of the (re)insurance industry, do we trust in the positive impact of our very own insurance product? Why is our message not resonating?

Only one out of 10 homeowner and/or business owner has taken out specific earthquake insurance to protect against earthquake hazard in Switzerland. This is a considerable advancement over the past 15 years. At the same time, this leaves a large portion of Switzerland's real estate not explicitly covered. This is home owners and businesses, but first and foremost financial institutions like banks, pension and real estate funds exposed to a rare, while severe risk. Switzerland's mortgage rate is at 140%+ of annual GDP.

This gap in financial risk management provided the fuel of an intensive panel discussion at the Swiss Re Centre of Global Dialogue on April 6. Expert participants from insurance, risk prevention, risk assessment and politics joined in. What conclusions did I take away: In the past 20 years, we've come a long way. The risk is much better understood, reasonably quantified by multiple trustworthy parties, various insurance products and capacity are available at reasonable price levels. But the gap remains.

Amongst experts, the "why" and "what" finds general acceptance today, while the "how" deserves better answers.

The panel generally agreed that a sales approach basing on rational arguments is not the conclusive answer. Individuals and risk managers open to purely rational arguments have closed their insurance gap in the meantime. How to find resonance with the remainder?

Some voices questioned the quality of the product:

* Is there too much complexity in the policy and its link to other cover?
* Is the insurance industry not a credible entity when advertising its products?
* As in most other insurance sectors, insurance is not being bought, but it is sold to you. In consequence, voices for increased governmental pressure to spread protection levels have been strong.
* At the same time, many voices asked for a more customer centric approach: How to get the positive impact of an insurance cover more credibly
and emotionally touching for potential customers?

While the industry clearly advanced, the last mile is clearly not covered. Where would you invest your energy?

Category: Climate/natural disasters: Earthquakes, Resilience

Tags: #earthquake.

Location: Zürich, Switzerland


Thilo Herrmannsdoerfer - 12 Apr 2017, 9:04 a.m.

Reaching out to people?

Cordial thanks to all participants for the lively debate! I was positively surprised about how emotionally involved the discussion became - to me that's a sign how relevant the topic is indeed. The big question that I take out of the discussion is: how to reach out to people?

We made some progress: 10% have an explicit earthquake cover vs. hardly anyone some 20 years ago - well done! For the remaining 90%, we obviously did not yet find a way to reach out. We communicated in return periods, risk maps, sound statements about building construction codes and the like.

So what to change in our communication?

I do not think we should follow any temptation of using emotionally loaded pictures of affected people or the like. It is our daily job to think about catastrophes that are fortunately so unlikely that they normally do not happen within a generation. Still, they do happen, and they can happen today. And then they are extremely relevant. It is our job to translate this know-how into real life.

How to make people aware of that? I liked the suggestion to reach out to our kids - make it a topic in a school lesson, practise how to shelter, maybe simulate an earthquake in a mobile info bus - and the topic will be discussed and reflected, and over time awareness will grow.

Any other ideas?

Jaap Berghuijs - 13 Apr 2017, 12:54 p.m.

Agree with your comments around the communication and the 'perception gap', Thilo. An alternative to the mobile info bus would be, of course, the earthquake simulator of focusTerra at ETH Zurich:

Andreas Schraft - 13 Apr 2017, 1:42 p.m.

Thilo, I also like the idea of making children aware of earthquakes and how to deal with them. However, I think that we should go one step further and teach them about risk and risk management. For us, these are common concepts which we use on a daily basis. Yet many people do not know them and I personally certainly never heard of them in school. Since so many decisions in our lives involve assessing and taking into account risk, everyone should have at least a basic understanding of the tools to do that consciously.

Mathias Rytz - 13 Apr 2017, 2:49 p.m.

I'm not in favor of "manipulating" parents via their kids, neither related to EQ nor to any other topic. The perception gap we had few years ago is in my point of view closed, today. The industry pushed the information via multiple channels and hardly any months passes, without reading about this topic in the media (good job!). Today's homeowners KNOW about the risk.

I see the problem as a classic mismatch between the products offered and the expected loss scenario. With the exception of Basel, the majority of the Swiss population lives in rather moderately exposed areas, according to the EQ risk map. As per their perception, the realistic loss scenario is more kind of a few cracks in the wall of their house. Unless such a claim turns out to be a severe structural damage, repair costs will usually be within the currently offered deductibles – and therefore they don't see any benefit in buying insurance.

Potentially more successful would be to
- sell a "worker", a limited EQ cover with a good potential to cover (and communicate!) a few losses a year. E.g. 25'000 xs 2'000.-. The industry might also include e.g. consultancy by an engineer, free of charge, in case of a EQ damage (similar to Baloise recent media campaing that addressed the emotional problem after a claim).
- apart from government, homeowners and insurance industry, also banks might be interested to get protection for their mortgages - which finally could result in a benefit for those that buy EQ insurance.

More clarity why the typical Swiss homeowner doesn't buy EQ cover you might get, when you run a internal survey and ask our own home owning colleagues at Swiss Re why they bought or why they didn't buy EQ protection.

Samuel Ruch - 18 Apr 2017, 9:02 a.m.

I support the idea of increasing financial literacy in general and basic risk management knowledge specifically. Integrating these topics into school curricula may be a promising approach which I would not perceive as a manipulation of parents to buy insurance coverage. Applying risk management knowledge to our day-to-day life does not necessarily lead to higher insurance coverage. Higher awareness of the protection gap means risk identification. Based on a proper analysis of the risk, the protection gap may be closed by prevention or mitigation actions or by risk transfer (i.e. buying insurance coverage). In addition, it is not meaningful to buy insurance coverage for certain risks – in case the risk can easily be borne by the individual. Increasing risk management sounds like a great idea. It will be a challenge for the insurance industry to do so in a neutral way, however, a promising one. Such a campaign must not be perceived as just another marketing campaign.

Tracy Brooks - 20 Apr 2017, 3:36 p.m.

My immediate reaction as a consumer is that maybe the gap persists due to the consumer's "saturation" on insurance coverage. I buy homeowners, auto, life and health insurance to name the highlights. Considering much of this spend is (hopefully) never recouped, it does seem daunting and/or uneconomic to consider yet another purchase when one is allocating limited financial resources. Similar to the way cable/internet providers have "bundled" services to entice consumers to buy more, one way to improve this gap may be to "bundle" the flood and EQ coverages into the already sold property products as standard practice. We, as an industry, may not like the loss of ability to separately negotiate rates for these coverages when we do bundle, but it may be a way to start to further erode the gap. And it's also a way to ensure the economic risk is shared more broadly. If regulatory regimes currently don't allow this, then maybe this is where the change starts.

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