Cost of volcanic eruption risk for large cities up to $30bn: Swiss Re

Assessing risk of over 500 active volcanoes, Swiss Re’s global volcano model calculated that large cities face total economic losses of as much as $30 billion.

One in seven of the world's largest urban areas are located within a 150km radius of an active volcano and 1 billion people live in this at-risk area, according to Swiss Re’s new volcano model. The 10 most exposed cities include Tokyo, Naples, Manila, Managua and Jakarta.

Losses from volcanic eruptions are still largely uninsured, presenting a significant protection gap. Particularly emerging markets such as Nicaragua or Ecuador would suffer severe economic disruption in case of eruption, according to Swiss Re.

"As global urbanisation gathers pace, the protection gap for volcanic hazards widens,” said Jayne Plunkett, CEO reinsurance Asia at Swiss Re. “But economic disruption and large-scale economic losses for people and businesses locally are only one part of the picture. For example, in the case of any large-scale eruption, supply chains would be affected all around the world, causing both economic and insured losses."

In some countries, the volcanic threat constitutes a substantial part of the insurable risks, and the ability to assess and price such risks with precision is crucial, according to Swiss Re. Currently, only Iceland has compulsory volcano insurance; elsewhere, losses from volcanic eruptions are largely uninsured, creating a huge protection gap. The precise quantification of volcanic risks will enable adequate insurance coverage.

Martin Bertogg, head of catastrophic perils at Swiss Re, said: "The new model allows us to calculate premiums for this important risk for individuals, businesses and countries. It's now up to us in the insurance industry to use this new opportunity, together with all partners, to design trustworthy and affordable coverage to help make the world more resilient when disaster strikes."

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