Cat losses rocket in 2016, widen the protection gap

The reinsurer said this is “significantly higher” than the $94bn losses in 2015 and was caused by large natural catastrophes, such as earthquakes and floods, according to preliminary estimates by its Sigma team. Asia certainly played its part in the higher losses as there were significant earthquakes in Taiwan and Japan, with the Kumamoto quakes proving to be the costliest disaster event globally of the year. Heavy rains throughout the year in Asia also led to severe floods in China and other countries of the region. hide According to public sources, total economic losses from flooding along the Yangtze River were at least $16bn. Overall insured losses were also higher in 2016 at around $49bn, compared to $37bn in the previous year, according to Swiss Re’s latest research. Swiss Re’s research was supported by fellow European reinsurer Munich Re which said that natural disasters had caused $175bn of damage in 2016, the highest level since 2012. Munich Re highlighted the two earthquakes on the Japanese island of Kyushu in April and the floods in China in June and July as the costliest events, responsible for $31bn and $20bn in respective losses. Overall, insurers paid out more than $50bn in natural disaster claims, reported Munich Re, which was almost double the $27bn paid out in 2015. Once again, however, these costs were dwarfed by the uninsured losses which Munich Re says exceeded $125bn. The gap between total losses and insured losses in 2016 shows that many events took place in areas where insurance coverage was low. Around 70% of the losses recorded by Munich Re were uninsured. Whereas uninsured losses in Europe stood at 47% of the catastrophe costs, a staggering 98% of the financial damage inflicted by the floods in China was uninsured. This evidence supports a discussion held at the recent Baden Baden reinsurance meeting about the need to bridge the protection gap and work more effectively together as an industry with government, to find ways to transfer more of the burden from the state to the private sector. The good news is that Swiss Re estimates losses resulting from man-made disasters fell to $7bn from $9bn in 2015. Globally, there were approximately 10,000 victims in disaster events in 2016. Natural catastrophes accounted for $150bn of the total economic losses in 2016. Insured losses from natural catastrophe events were $42bn in 2016, up from $28bn in 2015, but slightly below the annual average of the previous ten years ($46bn). Man-made disasters triggered an additional $7bn in insurance claims in 2016. Some highly destructive and largely uninsured earthquakes last year, in advanced and emerging countries, once again underlined the need to tackle the protection gap, said Swiss Re. The largest earthquake last year was the 7.0-magnitude quake that struck the Kumamoto prefecture in Japan on 16 April 2016, part of a series of strong shocks and aftershocks in the region. “The quakes resulted in extensive structural damage, fires and collapsed buildings, and claimed 137 lives. The total economic cost was at least $20bn, of which $5bn was insured. The Kumamoto quakes were the costliest disaster event globally of the year,” stated Swiss Re. Later in the year, central Italy was struck by an earthquake in August, which destroyed some small towns and killed 299 people. Swiss Re said government sources estimate the overall reconstruction cost for the August earthquake alone will be as high as $5bn. “Insured losses for that event, however, are only a fraction of the total, estimated at $70m, mainly from commercial assets,” stated the reinsurer. “Society is underinsured against earthquake risk,” said Swiss Re chief economist Kurt Karl. “And the protection gap is a global concern. For example, Italy is the eighth largest economy in the world, yet only 1% of homes in Italy are insured against earthquake risk. Most of the reconstruction cost burden of this year’s quakes there will fall on households and society at large,” he added.

Cat losses rocket in 2016, widen the protection gap

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