Yesterday I was reading the press release of the Swiss Seismological Service (SED) at ETH Zurich. They have updated their seismic hazard model for Switzerland. It was published September 1st but I didn't get around reading it earlier. I felt there are more important things that needed my attention, or were there?
The press release reminded me of the Gorkha earthquake in Nepal which took place in April 2015. The media attention back then was immense. Now, almost half a year later, no one is paying attention anymore, although the National Seismological Centre of Nepal is still registering aftershocks of the main event back in April.
While we feel that everything is back to normal, it isn't and it isn't just about the buildings and the infrastructure that need time to be rebuilt. Aftershocks let people relive the horror of the main event time and again. A catastrophic event such as in Nepal this year or in Haiti in 2010 or in Japan and New Zealand in 2011 aren't just "done" weeks or months after the event. It takes time, a lot of time.
Catastrophic earthquakes do not happen every day. However, just within 5 years 4 countries were rattled by major earthquakes and they are still struggling to rebuild and cope.
We may believe that the amount of time needed to get things back to normal is particularly large in developing countries. The examples of Japan and New Zealand show that this is not true. We may believe that advanced economies are more efficient in dealing with such events, but are we really? Aren't we already failing before the actual event happens?
The updated earthquake model of the Swiss Seismological Service shows that also in Switzerland a severe event can hit our communities and economy at any time. When it happens (it will happen, we just don't know when), will we be able to deal with it better than other countries? Are we better prepared than New Zealand and Japan where the threat of earthquake is widely known?
According to Swiss Re's latest sigma report the worldwide property protection gap (the uninsured part of the economic losses) amounts to USD 221 billion per year. Although the key contributors are the US, China and Japan, Switzerland is not exempt. Earthquake insurance penetration in Switzerland is estimated at below 15%, leaving more than 300 million USD of annual expected losses uninsured!
While the highest hazard level is in Valais, followed by Basel and Graubünden the scientists at SED affirmed that a strong or catastrophic event could occur at anytime, anywhere in the country. Why is it, then, that the insurance penetration is so low in one of the most developed and financially literate countries in the world? It is not the lack of availability or adequacy of insurance products; it is not the lack of trust in the insurance industry and it is not the affordability, or is it?
We as insurance and reinsurance industry have to ask ourselves what we can do to improve the status quo. We have the means to have a positive impact on society and we should use it. Just think about the place you live. Look around you and imagine that half of the buildings around you are destroyed. Imagine that at least 8 out of 10 of your neighbors are not insured. They will be rendered homeless and will be confronted with financial disaster. After an earthquake the value of their home could be zero while the mortgage still needs to be paid. In the media we will not only see pictures of destroyed homes and infrastructure but also pictures we are seeing right now: pictures of camps. At this time these camps are war refugee camps but tomorrow it could be camps for you and me, disaster refugees.
The consequences of a catastrophic event will be felt for a long time and not just by individuals. The whole country will be affected. Banks might struggle to cope with non-performing loans and see their equity depleted. Individuals will face emotional stress and potentially a financial disaster. The government will need to increase spending significantly. In some countries this will lead to downgrades by rating agencies and increase the cost of debt. Our society and economy will be in shock for a long time.
Do we as individuals and as an industry really have better things to do than to act to close the protection gap?
(Image courtesy of Swiss Seismological Service (SED), ETH Zurich. All rights reserved).
Category: Climate/natural disasters: Earthquakes