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23 Dec 15 18:24


A few days ago Swiss Re released its preliminary sigma estimates for 2015 catastrophes. For two consecutive years we have been fortunate to have experienced insured natural catastrophe losses which were about half that of the ten year average of $55 billion. In 2015 the estimated insured losses are expected to be in the neighborhood of $23 billion while 2014 closed out at $28 billion.

After 30 years of studying losses due to natural catastrophes and after a few less than average catastrophe years we should be cautious about the natural tendency for becoming too inadvertently complacent.   We should always remember that the risk due to extremely large natural and man-made catastrophes is real and, absent of any major recent extreme events, it's all too easy for us to forget that the next one will happen at any time and most likely will be larger than expected.

In between major catastrophes we tend to increase our property exposures in high risk areas leading to greater damage potentials than we have experienced in the past. This is more of a concern in the developing high growth markets. In the past the vast majority of the costliest extreme events populating sigma's loss reports came from the US and Europe. Recently larger economic losses from extreme events are coming from growing markets such as Thailand, Mexico and China. As these catastrophe exposed new markets continue to grow our sigma loss graphs will eventually be populated by occurrences coming from these regions. Sadly, many of these same regions are also vulnerable to the increased hazards associated with climate change.

Sigma shows the all too alarming gap between economic and insured loss in both the developed and developing countries. The recent sigma preliminary numbers identify that the economic losses of these past two years have been approximately three times the insured loss estimates. In many of the high growth markets the gap may be greater since insurance is not as common in these areas and the population may not have easy access to, cultural acceptance of, or knowledge about the risk and  insurance.

One area of the world where the gap is too wide exists in my own country in the state of California where close to nine in ten home owners have no earthquake insurance. These gaps place tremendous financial burdens on all of us and there is no reason for why these gaps cannot be reduced through innovative insurance products.

As we look forward to the New Year please consider that our extreme event fortunes may not always be as favorable as it was in 2015 or 2014. We should remain prepared, not be complacent, continue to promote resiliency, and help everyone be insured.


Category: Climate/natural disasters: Climate change, Disaster risk, Resilience


3 Comments

Honza Kerver - 10 Jan 2016, 8:50 p.m.

Andrew, interesting piece. How would you suggest that large re/insurers help on the level of home owners to mitigate natural disaster risks?

Andrew Castaldi - 11 Jan 2016, 1:41 p.m.

Hello Honza,
Thanks for taking the time to read and comment. Our (insurer/reinsurer) business is to understand and quantify risk. The first step for mitiigation is to be aware of the risk. To me there is no better indication of risk to a homeowner than a risk based insurance premium - the greater the risk the greater the premium. Once aware of the risk the consumer or community can work with us on how to reduce that premium by mitigating that risk. There are far too many industry initiatves to list here but we do offer advice.

Please keep in mind that it is not only the current risk that we are worried about. Certain communities are proactivley thinking about their future risk (climate change) as well as the risk that they face today. Communities often use our expertise and models to determine future risk and analyze a strategy to mitigate that risk before it is too late. It is easier and less costly to design for tomorrow's hazard today rather than wait for the catastrophe of tomorrow.

Honza Kerver - 13 Jan 2016, 12:40 p.m.

Hi Andrew,

Thank you for your elaborate reply. I was asking because (as I set out in my post here: https://openminds.swissre.com/stories/942/) I could also see a role for re/insurers to push the application of nature based solutions by clients to mitigate risks - offering not just the stick (the higher premium) but also the carrot (IF you perform the following actions your premium WILL go down by this percentage) where the efforts to get the carrot could perhaps even be co-financed by the re/insurer.

What would your thoughts be on that?


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