Nat CAT cover in 17 markets underinsured by $168 b: Lloyd’s

An annualised US$168 billion insurance deficit will leave 17 high-growth countries severely exposed to the long-term costs of catastrophic events, says a recent report by Lloyd’s of London, which also called on businesses, governments and insurers to adjust to the threat that the insurance shortfall presents to jobs and homes.

In five of the 17 countries identified as severely underinsured, the average uninsured loss for major disasters is at least 80%, with China topping the list with $18.91 billion. India and Indonesia emerged the second and third most underinsured countries, with $1.96 billion and $1.45 billion, respectively.

In contrast, five major global disasters in 2011 showed only US$115 billion or 21% of a total economic loss of $538 billion was covered by insurance.

China insured just 1.4% of losses arising from Nat CATs between 2004 and 2011, with $208 billion in uninsured losses.

Lloyd’s says risk management needs to be a board-level issue and businesses should invest more in short-term preparation for long-term protection. This means better contingency planning to protect supply chains. Better planning and risk management can save money over the long term, free up funds for investment and allow businesses to better absorb shocks.

Governments need to invest more in mitigation measures such as flood barriers and coastal defences, and promote strong building codes, to minimise the damage done by the next major disaster in a fragile fiscal climate. They can also help their economies by opening up markets to private insurers to increase the capacity available to underwrite risks.

The industry also needs to take steps to understand better risk in growth economies - enabling them to research and price new risks.

This could include investing in relationships with insurers in unfamiliar territories, where the problem of underinsurance is most severe and doing more to develop a range of products and models for new clients in growth economies.