The global protection gap—the difference between economic and insured losses—results in an enormous cost to society when disasters occur. This cost continually threatens the resilience and economic well-being of under-insured developing nations with limited capacity for disaster response and recovery. Developed countries, particularly those with emerging yet still fragile economies, can also be at risk. A recent example in Croatia illustrates the point.
While earthquakes are widespread throughout Europe, the most destructive events have historically occurred in the Mediterranean region. This is a seismically active region due to the northward convergence of the African Plate with respect to the Eurasian Plate along a complex plate boundary.
Shortly after 6 a.m., local time, on Sunday, March 22, 2020, an Mw 5.3 earthquake struck 9.2 km (5.7 miles) to the north of Croatia’s capital, Zagreb. The quake was the strongest experienced in the area in 140 years. Shaking was felt as far away as Slovenia and southern Austria and was followed by a series aftershocks.
At least 450 buildings in the city were damaged, among them the cathedral (where the top of a spire rebuilt after an earthquake in 1880 toppled), museums, and the parliament building. Museum exhibits were seriously damaged; falling debris wrecked parked vehicles and blocked streets; fires broke out following the temblor; and power outages were experienced. The earthquake occurred while the country was in coronavirus lockdown, which complicated the response.
Insurance and Impact on Recovery
Croatia is a small country with a population of about 4.25 million located in Southeastern Europe, bordering the Adriatic Sea, between Bosnia and Herzegovina and Slovenia. It is a newly developed country that is building a high-income service-based economy and has been a member of the European Union since 2013. It has a growing insurance market, but beyond auto and life insurance the penetration is still low. Property and casualty insurance penetration in Croatia ranks near the bottom compared to other countries in the EU, and the lack of insurance recoveries places additional burden on recovery efforts after catastrophes.
Insurance premium share in the gross domestic product (insurance penetration) is a key indicator of the international comparability and significance of insurance activity within nations. According to Swiss Re, in 2016 Croatia’s total premium as a percentage of GDP was 2.6%. The comparable figure for the U.S. was then 7.3% and for Japan, 10.8%.
The Protection Gap and Catastrophe Models
For many insurers, the protection gap represents not only a potential business opportunity but also a responsibility to act. In regions with perils covered by catastrophe models, insurers have the tools and data available to address the market need. AIR has developed an Earthquake Model for Southeast Europe that covers Albania, Macedonia, and Serbia and also offers an Earthquake Model for the Pan-European Region that extends into Slovenia and Hungary. The domains of these models abut, but do not include, the three neighboring countries of Croatia, Bosnia and Herzegovina, and Montenegro—each of which is exposed to earthquake hazard. For countries such as these, AIR’s Model Builder offers a solution.
Model Builder is a tool for creating, modifying, and sharing custom models, employing Touchstone® as an open platform. Users can input their data on the hazard’s events and intensities, along with their own engineering data for damage estimation, via templates designed with AIR’s unique expertise for rapid development of complex, enterprise-grade custom models. Model Builder’s event engine converts their information for validation and use in Touchstone to calculate ground-up losses and seamlessly apply terms via the financial module. Model Builder is a tool that can be used to pursue business opportunities and close the protection gap.