Tag Archives: Underinsurance

Insurance Payouts Underpin Disaster Recovery Process

Tens of thousands of policyholders caught in a disaster in 2016 were better able to recover from the losses and hardships inflicted thanks to insurance.

Global insured losses from catastrophes totaled around $54 billion in 2016 – the highest level since 2012, according to the latest report from Swiss Re sigma.

North America accounted for more than half the global insured losses in 2016, with insured losses from disaster events reaching $30 billion, the highest of all regions.

This was due to a record number of severe convective storms in the United States and because the level of insurance penetration for such storm risks in the U.S. is high, sigma noted.

For example, a hailstorm that struck Texas in April 2016 resulted in an economic loss of $3.5 billion, of which $3 billion, or 86 percent, was covered by insurance.

“With insurance, many households and businesses benefited from insurance payouts for the heavy damage to their property caused by large hailstones.”

However, insurance cover is not universal. The shortfall in insurance relative to total economic losses from all disaster events—the protection gap—was $121 billion in 2016. See this chart:

“Under-insurance against catastrophe risk is a reality in both advanced and emerging markets, and there is still large opportunity for the industry to help strengthen worldwide resilience.”

For example, Swiss Re noted that the U.S. has been and continues to be critically underinsured for flood risk, with a flood protection gap of around $10 billion annually.

Additional Insurance Information Institute facts and statistics on global catastrophe losses are available here.

Boosting Take-Up

A perennial concern of insurers everywhere is why take-up rates for certain insurance coverages remain low, even as the risks increase. How to boost take-up rates among individuals and businesses is an ongoing challenge as insurance competes with any number of products and choices with higher priority on the shopping list. Earthquake, flood, terrorism, and renters insurance are just some examples. Let’s take earthquake. The powerful quake in Japan this week is a reminder of the importance of having adequate coverage. In Japan, as in the U.S., residential earthquake coverage is available in the form of an endorsement. While traditionally the take-up rate of residential earthquake coverage in Japan has been low, recent reports suggest it has been rising and is now at around 37 percent. Meanwhile in California, the U.S. state most commonly associated with earthquakes, it’s estimated that only 13 percent of homeowners buy the coverage. It’s hard to generalize on the reasons why, particularly across countries and different risks, but some contributing factors may be: perceived high cost of insurance, lack of awareness about the risk, and the mindset that expects a government bail-out to follow a disaster. People also may be more likely to buy insurance when the perceived need is greatest (i.e. just after a major disaster has struck). So how can we change the stats and make our products more desirable to the buying public? What are your thoughts? For more on earthquakes and other catastrophes, check out the I.I.I.’s disaster site and facts & stats.