Governments must plug $1.3 trillion insurance gap: Swiss Re
Governments need to arrange insurance tools and solutions to deal with natural disasters before catastrophes strike, says a new Swiss Re publication launched at the World Bank /IMF annual meeting in Lima.
The report, Disaster risk financing: Smart solutions for the public sector, said the gap between insured and total losses is widening, and that governments are “uniquely exposed” to these risks because they typically shoulder the cost of relief and recovery and pay for the reconstruction of infrastructure.
“Floods, earthquakes, hurricanes and droughts continue to ravage countries and destroy lives and economies. The gap between insured and total losses is widening, while many disaster-prone countries lack financial preparedness. Governments are uniquely exposed to these risks. Innovative insurance tools and solutions can help bridge this gap, but it's crucial to arrange them before catastrophe strikes,” says Swiss Re.
The firm claims disaster risks are increasing, but insurance isn’t keeping pace, with an estimated $1.3 trillion gap between insured and total losses, which is says is hampering a country's ability to recover.
Data showed that on average, only approximately 30 percent of catastrophe losses have been covered by insurance over the last 10 years, meaning around 70 percent of catastrophe losses have been borne by individuals, firms and governments.
Swiss Re says that as a first priority, governments should enable a functioning insurance market to help absorb a major part of disaster losses suffered by individuals and businesses. It also advises pre-event financing solutions, which it says can alleviate the remaining financial burden on governments.
It says post-disaster financing, such as debt financing or donor aid, should only come into play to cover residual losses once all other risk transfer solutions have been exhausted
Michel Liès, group chief executive officer, Swiss Re, said: "The risk landscape is becoming more and more complex as the world becomes more interdependent. No country can afford to be left unprotected."
