Swiss Re wants to help close flood/EQ protection gap
Swiss Re wants to work with, and complement the efforts of, risk transfer bodies such as the National Flood Insurance Program (NFIP) and the California Earthquake Authority (CEA) to help reduce the protection gap in the US, Keith Wolfe, president of property & casualty, US at Swiss Re, told PCI Today.
He said that the reinsurance sector is well positioned given its expertise and the capital it can make available to help solve these challenges.
“From a growth standpoint the traditional reinsurance market is quite stable,” Wolfe said. “We see our market share and market presence quite well positioned as a lead market in the US.
“As a result, we are looking at opportunities to create new spend. There is a tremendous opportunity with under or uninsured risks in the economy and society as a whole; we want to bridge the protection gap between economic and insured losses when bad events occur.”
He said Swiss Re wants to help increase flood insurance penetration in the private insurance and reinsurance market.
“We see this as a complementary effort to what is going on with the NFIP and we think the two can co-exist quite well, and still increase penetration,” he said.
According to Swiss Re, only one in six homes in the US has flood insurance. Wolfe said many people think they don’t need it; others assume their homeowners’ policy covers flood; others think they can’t afford it. But, he pointed out, this means that an average year’s worth of storms will produce uninsured losses of $10 billion due to flooding, compared to insured losses of $5 billion.
A combination of other factors is making the crisis worse: torrential rainfalls, rising sea levels, more severe storms and the storm surge that comes with them, plus increased residential and commercial development in flood-prone areas. Wolfe points to the flooding caused by hurricanes Harvey and Florence as examples of this.
Swiss Re sees an opportunity for the private market to deploy its knowledge and capacity to close the flood protection gap and create more resilient communities, he said.
Its strategy is to allocate capital to minimise coverage gaps where the need is urgent and the outlook is positive. Swiss Re is optimistic about the future of flood risk, has invested in the tools and knows how to take it on, he said.
Wolfe added that Swiss Re is also focused on the protection gap that relates to earthquake risk, primarily in California. Only an estimated 10 percent of private households in the state have some form of earthquake insurance, which he called “dismally low”.
“We want to try and improve the proportion of insurance penetration and the company has several different activities to try and address that,” he said.
“The earthquake issue is a bit different. I don’t think there’s an under-awareness of the low level of purchasing of earthquake insurance in California. There’s no lack of product offerings—there’s an enormous number of earthquake coverage products.
“We think there is probably a gap between what’s available in the market and what people are interested in purchasing. Also, there hasn’t been an event in almost 25 years—Northridge in 1994 was the last significant earthquake to hit the US.
“Time does skew people’s perception of risk. If there hasn’t been an earthquake people just don’t think about that risk—they tend not to address the issue head on.”
Wolfe stressed that a large earthquake event in California is a much more significant risk to the economy and society than some of the recent hurricanes.
“There is a significant under-prepared community in California, especially outside the insurance industry, although there are great organisations like the CEA who are the biggest advocates of awareness in California; a part of their mandate is to get the insurance penetration up,” he said.
This year Swiss Re was one of the companies that supported the CEA’s California-wide event, the Great California Shake-Out, an awareness-building programme designed to make people more aware of what to do if a major earthquake strikes.
More than 10 million people registered for the event, which took place on October 18, with organisations holding earthquake preparation drills all over the state.
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