Tag Archives: Swiss Re

Lower First Half Cat Losses, But Higher Percentage Insured

While total economic losses from natural catastrophes and man-made disaster events remain far below-average in the first half of 2015, the global insurance and reinsurance industry is covering a higher than average percentage of those losses.

That’s the key takeaway from preliminary sigma estimates of global catastrophe losses for the first half of 2015, just released by Swiss Re.

Of the $37 billion in total economic losses from disaster events in the first half of 2015, the global insurance and reinsurance industry covered nearly 45 percent, or $16.5 billion, of these losses.

This is higher than the previous 10-year average of 27 percent covered by the global re/insurance industry.

Of the overall insured losses in the first half of 2015, $12.9 billion came from natural disasters, down from nearly $20 billion in first half 2014, and again below the average first-half year loss of the previous 10 years ($25 billion).

Man-made disasters triggered an additional $3.6 billion in insured losses in the first half of 2015, sigma said.

So why did insurance and reinsurance cover a higher proportion of global catastrophe losses in the first half?

The answer lies in the location of the most costly insured natural catastrophes losses for the insurance industry in the first half of 2015–thunderstorms in the United States and winter storm losses in Europe.

These larger loss events, as well as the severe winter weather in North America, all contributed to the  lower percentage of uninsured losses through the first half of the year.

Here’s the Swiss Re chart showing the dollar breakout of insured and uninsured catastrophe-related losses from 2005 through 2015:

CatastropheLossesInsuredandUninsured

Note: insured losses + uninsured losses= total economic losses

But, as Artemis blog reports here, sadly the lower proportion of uninsured losses is not related to any major increase in insurance penetration.

The Nepal earthquakes provide a striking example. While economic losses from the quakes are estimated at $5 billion, only around $160 million were insured.

In the words of Kurt Karl, chief economist at Swiss Re:

The tragic events in Nepal are a reminder of the utility of insurance. Insurance cover does not lessen the emotional trauma that natural catastrophes inflict, but it can help people better manage the financial fallout from disasters so they can start to rebuild their lives.”

Check out Insurance Information Institute (I.I.I.) facts and statistics on global catastrophes.

Insurance Responds To Rising Costs of Food Recalls

You may have read that the Justice Department is warning food manufacturers that they could face criminal and civil penalties if they poison their customers with contaminated food.

Recent high profile food recalls, such as the one at Texas-based Blue Bell Creameries and another at Ohio-based Jeni’s Splendid Ice Creams, have drawn attention to this issue once again.

Now a new report by Swiss Re finds that the number of food recalls per year in the United States has almost doubled since 2002, while the costs are also rising.

Half of all food recalls cost the affected companies more than $10 million each and losses of up to $100 million are possible, Swiss Re says. These figures exclude the reputational damage that may take years for a company to recover from.

Contaminated food also takes a financial toll on the public sector. According to the U.S. Department of Agriculture, costs for the U.S. public health system from hospitalized patients and lost wages in 2013 alone was $15.6 billion. In total, 8.9 million people fell ill from the 15 pathogens tracked, with over 50,000 hospitalized and 2,377 fatalities.

Demographic change is putting more sensitive consumer groups at risk. Ageing societies, an increase in allergies in the overall population and the fact that malnourishment is still prevalent in many countries are significant drivers of the increase in exposure, Swiss Re notes.

Which brings us to insurance.

A variety of insurance products are available to help companies protect their bottom line from this potentially catastrophic exposure.

Product recall/contaminated product insurance will cover the costs of recalling accidentally or maliciously contaminated food from the market, and impaired or mislabeled products that cause bodily injury, sickness, disease or death.

Product liability insurance also provides compensation of third party liability claims for bodily injury and property damage caused by an impaired product.

As Roland Friedli, risk engineer at Swiss Re and co-author of the report says:

Food recalls can be caused by something as simple as a labeling error on the packaging, or as complex as a microbial contamination somewhere along a vast globalized supply chain. Yet event a simple mistake can cost a food manufacturer millions in losses and even more in terms of reputation. Insurance and sound risk management are essential for keeping affected businesses afloat.”

Further information on product liability, recall and contamination insurance and is available from the Insurance Information Institute (I.I.I.) here.

Swiss Re: Lack of Insurance Cover An Issue in Many Countries

The amount of financial loss caused by catastrophes not covered by insurance is growing, according to the latest Swiss Re sigma report.

This so-called global insurance protection or funding gap totaled $75 billion in 2014.

The rate of growth of total losses has outpaced the growth of insured losses over the course of the last three decades, Swiss Re notes:

In terms of the 10-year moving average, insured losses grew at 10.7 percent between 1979 and 2014, and total losses by 11.4 percent.”

Here’s the Swiss Re visual showing global  insured vs. uninsured losses from natural catastrophes and man-made disasters from 1970 to 2014:

CA8oVonUUAAcllL

Lack of insurance cover clearly remains an issue in many countries.

Swiss Re gives the example of  low pressure system Yvette last May which brought very heavy rain in Europe to Serbia, Bosnia and Croatia — in some areas the heaviest downpour in 120 years. Yvette resulted in 82 fatalities, the largest loss of life from a natural catastrophe in Europe in 2014, and total losses were estimated to be $3 billion — mostly uninsured.

Areas of the United States are also underinsured, sigma reports. Last August’s South Napa earthquake caused structural and inventory damage of $0.7 billion, particularly in the numerous local wine barrel storage facilities. However, the insured loss was just $0.16 billion.

As Lucia Bevere, co-author of the sigma study, notes:

In spite of high exposure to seismic risk, insurance take-up in San Francisco County and California state generally is still very low, even for commercial properties. That’s why insured losses, in certain areas, can be surprisingly low when disaster events happen.”

Meanwhile, the economic cost of natural disasters continues to rise due to economic development, population growth, a higher concentration of assets in exposed areas and a changing climate.

Without a commensurate increase in insurance penetration, the above will likely result in a widening protection gap over the long term, sigma concludes.

I.I.I. has more facts and statistics on global catastrophes available here.

Changing U.S. Liability Claims Environment

Growth in U.S. liability claims could accelerate to 5-6 percent in the near future, according to a just-released report by Swiss Re sigma.

The slowdown in U.S. liability claims paid after 2008, primarily due to economic drivers such as the recession and weak recovery, is expected to reverse.

Why the change?

Cyber risk and the liability from emerging technologies including hydrofracking and autonomous cars, combined with stronger economic growth will drive liability claims costs higher, sigma says.

Interestingly the report suggests that the effects of tort reform, which contributed to a slowdown in claims growth in the mid-2000s in the U.S., were a one-off benefit and will no longer suppress claims growth to the same degree.

It notes:

Often these types of reform have only a temporary effect on claims growth, which fades as the rules eventually soften again or the legal profession learns how to optimize the pursuit of claims in the new framework.”

Tort reform in the U.S. has focused on medical malpractice and class action claims, the report says.

Many early studies concluded that medical malpractice reforms such as limits on lawyers’ fees and non-economic compensation were effective in reducing medical malpractice liability. However, some of these caps were later overturned by state supreme courts.

Despite passage of the Class Action Fairness Act in 2005, empirical evidence on the effects of federal class action reform in the U.S. remains inconclusive, sigma adds.

The report also warns that litigation funding, in which a third-party funding company pays the costs of litigation and is paid only if the litigation is successful, is still in its infancy in the U.S. but developing.

There are fears it will grow, driving up litigation and future claims costs for insurers.”

Check out this I.I.I. backgrounder on the U.S. liability system here.

Swiss Re: May Thunderstorms Most Costly Insured Nat Cat In H1 2014

Natural catastrophe events in the United States accounted for three of the five most costly insured catastrophe losses in the first half of 2014, according to just-released Swiss Re sigma estimates.

In mid-May, a spate of severe storms and hail hit many parts of the U.S.   over a five-day period, generating insured losses of $2.6 billion. Harsh spring weather also triggered thunderstorms and tornadoes, some of which caused insured claims of $1.1 billion.

The Polar Vortex in the U.S. in January also led to a long period of heavy snowfall and very cold temperatures in the east and southern states such as Mississippi and Georgia, resulting in combined insured losses of $1.7 billion.

SwissReH114NatCats_web

These three events contributed $5.4 billion of the $19 billion in natural catastrophe-related insured losses covered by the global insurance industry in the first half of 2014, according to sigma estimates.

The $19 billion was 10 percent down from the $21 billion covered by insurers for natural catastrophe events in the first half of 2013. It was also below the average first-half year loss of the previous 10 years ($23 billion). Man-made disasters added $2 billion in insured losses in the first half of 2014, sigma reports.

The $21 billion in insured losses from disaster events in the first half of 2014 was 16 percent lower than the $25 billion generated in the first half of 2013, and lower than the average first-half year loss of the previous 10 years ($27 billion).

Total economic losses from natural catastrophes and man-made disasters reached $44 billion in the first half of 2014, according to sigma estimates.

More than 4,700 lives were lost as a result of natural catastrophes and man-made disasters in the first half of 2014.

Swiss Re: Widening Global Protection Gap

Swiss Re’s final tally of 2013 global cat losses highlights the growing risk protection gap between economic losses and insured losses.

Total economic losses from natural catastrophes and man-made disasters amounted to $140 billion in 2013,  of which almost one third  Ã¢â‚¬“  around $45 billion – were insured.

This means that in 2013 the global protection gap (the level of uninsured losses) was $95 billion.

Swiss Re notes:

Economic development, population growth, urbanization and a higher concentration of assets in exposed areas are increasing the economic cost of natural disasters. In addition, climate change is expected to increase weather-related losses in the future. All of the above, if not accompanied by a commensurate increase in insurance penetration, results in a widening protection gap.†

That’s not to say that there hasn’t been any progress over the years  in the area of risk prevention and mitigation measures.

Swiss Re makes the point that a very effective pre-designed evacuation drive saved thousands of lives when Cyclone Phailin made landfall in Odisha, India in October 2013, with winds up to 260km per hour.

However, the cyclone destroyed around 100,000 homes and more than 1.3 million hectares of cropland.

Kurt Karl, chief economist at Swiss Re, says:

The total economic loss of Cyclone Phailin is estimated to be $4.5 billion, with just a tiny portion covered by insurance. The insurance industry can play a much larger role in helping societies deal with the fallout of disaster events, such as this and Typhoon Haiyan.†

Meanwhile, a post at Artemis blog  suggests that sustaining local markets is the key to increasing insurance penetration and ultimately narrowing the gap between economic and insured losses:

In order to narrow this gap reinsurers and insurers need to work together with development organisations and the capital markets to create risk transfer facilities that truly meet the goal of growing insurance penetration. Sustaining local markets is key here. Initiatives which seek to create new capacity for a single, often reinsurer, backer just don’t seem to be having the desired effect so far and at the moment seem less likely to be sustainable over the longer-term.†

Here’s the Swiss Re chart showing the difference between total losses and insured losses from 1970 to 2013, highlighting the widening protection gap over the last 40 years:

Check out our prior post on the widening gap between economic and insured cat losses here.

Swiss Re on First Half Catastrophe Losses

While 2013 so far has  been a below-average catastrophe loss year for the global insurance industry, this could easily change in the coming months, Swiss Re warned yesterday.

Just-released sigma estimates put total economic losses from natural catastrophes and man-made disasters at $56 billion in the first half of 2013, of which $20 billion was insured.

Insured losses from natural catastrophes totaled $17 billion, with flooding a main driver.

In a press release, Kurt Karl, chief economist at Swiss Re says:

Though 2013 has so far been a below-average loss year, the severity of the ongoing North Atlantic hurricane season, and other disasters such as winter storms in Europe, could still increase insured losses for 2013 substantially.†

Flooding accounted for some $8 billion of the $17 billion in global insured losses from natural catastrophes in the first half.

As a result, 2013 is already the second most costly calendar year in terms of insured flood losses on sigma records.

Check out I.I.I. facts and statistics on global catastrophes here.

In other news, the late summer  edition of Cavalcade of Risk, a round-up of risk related posts from around the blogosphere, is now live over at My Personal Finance Journey. Our recent post on cyber insurance is among the featured posts.