Swiss Re recently released preliminary estimates for losses from disasters for 2016. They estimate total economic losses at USD 158 billion, and insured losses at less than a third of that—around USD 49 billion.
Using AIR’s recently published paper on 2016 Global Modeled Catastrophe Losses, we can begin to put these numbers in context. Total economic losses for 2016 (USD 158 billion) are significantly less than AIR’s estimate of Average Annual Economic Losses (USD 379.5 billion), meaning that despite having significantly higher losses than 2015 (USD 94 billion), 2016 can still be considered a year in which worldwide losses fell well below the long term average.
Insured losses for 2016 (USD 49 billion) were far less than estimated Average Annual Insured Losses (USD 80 billion) from AIR’s models. Insurers should, therefore, not be surprised at this level of loss and should expect insured losses on average to significantly exceed the 2016 figure.
The huge disparity between economic and insured losses further illustrates the vast protection gap that exists around the world, particularly in some of the world’s most catastrophe-exposed and most vulnerable regions. The need for increased insurance penetration is particularly acute in areas like Haiti and Taiwan; both suffered devastating tropical cyclone losses in 2016, and yet providing any type of affordable insurance coverage to their populations remains a struggle.
Even Italy, a country with Europe’s fourth-largest economy and a history of major temblors dating back to Roman times, struggles to successfully promote the need for earthquake insurance. It has, once again, found itself facing large-scale devastation in an area where it will be left almost entirely to the government to shoulder the cost of an extensive rebuild.
It’s time to look to governments to work together with public entities to provide coverage for areas desperately in need of insurance. PCRAFI—an ongoing collaboration between SOPAC, the World Bank, the Asian Development Bank, and the government of Japan to provide risk assessment tools and financing aid to many Pacific Island Nations—is one example of how a partnership like this can work for a region facing ever-increasing threats as the climate continues to warm.
AIR’s infographic Measuring the Global Protection Gap looks at uninsured catastrophe risk and how the insurance industry can play a major role in enhancing global resilience.