2014 was another year marked by human and economic loss due to natural catastrophes. Another year of staggering numbers, over 12,000 lives lost and $110bn of economic loss. However despite the enormity of these numbers, it was a relatively mild year, almost the lowest on record for lives lost (12,777 compared to an average of more than 100,000 per year) and amongst the lowest level of economic loss (a 10 year average of almost $200bn).
One thing that hasn't dropped though is the insurance protection gap. In fact, of the $110bn loss, only $35bn was insured and over the last few decades that ratio of insured loss to economic loss has actually been widening.
On a similar theme of seemingly contradictory numbers, the Christchurch, New Zealand series of Earthquakes were a fairly low intensity event in a region not heavily populated. Yet the resultant loss was large and the lessons valuable on a global scale - what would it look like with an epicentre in London?
We came together in the Gherkin in London on 19th June for our annual UK Sigma Nat Cat event to engage on and discuss topics like this and ask ourselves some questions like "why is the UK protection gap increasing"?
It was also an opportunity to showcase Swiss Re's CatNet tool developed to help clients effectively evaluate Nat Cat exposures. Did you know that over 80% of the data used for assessing insurance risk has a spatial feature? You probably do know that location, location, location is highly important!
Another reason why human losses were down is that we're getting better at disaster response. So why are we getting better at preserving life when major catastrophes hit? Simply that we have built massive improvements into our disaster preparedness, it's possible now for the authorities in a region like Uttar Pradesh to mobilise and relocate over 1 million inhabitants when a cyclone is forecast!
Why is the amount of loss burden that falls to reinsurers reducing compared to overall losses? For instance, China has grown so fast and become such an important part of the global stage, but infrastructure growth and insurance haven't yet kept pace - and new risks such as cyber are also evolving and we haven't yet designed the appropriate insurance products to capture that risk.
Bucking the trend of last year, in our own modest way, the UK's wet early 2014 weather spell did cause some insurance losses ($530m). However despite the weather the only thing significantly broken were the records: The global chart of expected loss per peril and the split between economic and insured loss (see embedded pic above) shows that the UK has a considerably higher insurance penetration than many other countries.
At the event, NatCat expert Lucia Bevere highlighted the work that needs to be done by insurers, reinsurers and governments to raise awareness around insurance risk and coverage. For instance, many in Italy genuinely believe that they have earthquake cover under their standard policy.
During discussions at the event, one theme that came up was whether governments make Nat Cat cover compulsory. How do we increase awareness amongst consumers around what they don't have, and how do we develop the next generation of models to better understand risk (including those developing areas such as CBI)?
After the event, several attendees came up to ask me about CatNet. They were especially interested in the ability to interface with their own systems.
One thing is clear: Our industry has a strong willingness to understand, monitor and control risk, as well as a desire to close the protection gap. The question is, how do we work together to help consumers better understand (and address) their risk exposures and governments implement measures to grow coverage and resilience?
I'd love to hear your thoughts. Please post as comments below.
View the presentations and the speakers that participated at the event.
Check out CatNet®, Swiss Re's proprietary NatCat exposure assessment tool.
Category: Climate/natural disasters: Disaster risk, Earthquakes, Floods/storms