2013 insured catastrophe losses hit $45Bn, protection gap widens

Global reinsurance firm Swiss Re has now delivered its final assessment on the total global economic and insured losses from natural catastrophes and man-made disasters in 2013, putting insured losses at $45 billion and economic losses at $140 billion.

This is only slightly higher than the preliminary estimates Swiss Re gave back in December when it said it believed the insured loss figure would be around $44 billion, based on an expectation of economic losses reaching $130 billion.

The totals, particularly for insured catastrophe losses, are well below the long-term averages. The ten-year inflation adjusted average for insured losses is $61 billion, while the ten-year average for economic losses is $190 billion, demonstrating that 2013 was a particularly benign year for insurers.

Of the $45 billion of insured losses in 2013, Swiss Re puts $37 billion down to natural catastrophes with the other $8 billion attributable to man-made disaster events.

Swiss Re’s report highlights the growing protection gap, between economic and insured losses, an issue the insurance and reinsurance industry is keen to address as it represents much of the new opportunity in emerging economies.

Perhaps reflecting the growing gap is the high level of lives lost in 2013 catastrophes, with 26,000 dead last year. Compare than figure to 2012, when insured losses were much higher at $81 billion but 14,000 lives were lost and it shows the lack of correlation between insured loss and loss of life when it comes to catastrophes. Of course this also reflects the fact that the location of a catastrophe event has a huge influence on loss of life due to better resilience and preparation in developed economies.

We’re not going to go into detail on the major loss events of 2013 as we’ve covered them before, see the links at the bottom of this article for more on that. Instead it is perhaps more interesting to look at the widening gap between economic and insured losses, which is the very opportunity that most of the major reinsurance firms see as their best opportunity to grow their premiums.

The gap between the ten-year average of insured and economic losses is widening sharply, showing that exposures are growing but insurance premium uptake is not keeping up pace.

Insured vs economic catastrophe losses 1970 - 2013

Swiss Re said; “The protection gap, the difference between total losses and insured losses, has progressively widened over the last 40 years. Disaster events continue to generate increasing total losses alongside ongoing economic development, population growth and urbanization.”

Narrowing this gap means increasing insurance penetration in developing economies of the world, but in order to achieve that risk transfer and reinsurance are often required to stabilise economic activity after major catastrophe events, allowing local markets to be sustained.

In order to narrow this gap reinsurers and insurers need to work together with development organisations and the capital markets to create risk transfer facilities that truly meet the goal of growing insurance penetration. Sustaining local markets is key here. Initiatives which seek to create new capacity for a single, often reinsurer, backer just don’t seem to be having the desired effect so far and at the moment seem less likely to be sustainable over the longer-term.

The report from Swiss Re’s Sigma division goes into much more detail on the catastrophes and man-made disasters that happened in 2013. You can download the full report in PDF format here.

Read other recent articles reporting on 2013 catastrophe loss events:

– 2013 insured natural catastrophe losses $45 billion: Aon

– Insured losses from 2013 German catastrophes near $9.6 billion

– 29% of 2013 insured catastrophe losses in Europe, 54% in U.S.: Munich Re

– $44 billion insured losses from catastrophes and disasters in 2013: Swiss Re