Catastrophe events in August show global disparity of insurance penetration: Aon Benfield

The August Global Catastrophe Recap, from Aon Benfield’s catastrophe modelling arm Impact Forecasting, shows that there is considerable disparity between insurance penetration levels around the globe. The low amount of insured losses in some catastrophe events around the world demonstrates where growth should be expected and where there is an opportunity for insurers and reinsurers to grow their business by putting themselves in a position to grab market share as penetration levels increase.

Steve Jakubowski, President of Impact Forecasting, commented; “August witnessed a series of costly cyclone events globally, which have highlighted not only the disparity in risk management procedures between countries, but also the relative levels of insurance penetration. Taking Typhoon Damrey in China as an example, the insurance cover may be in the region of three percent of the resultant total economic losses. This is very low compared to the United States, where we expect insurance cover for wind for Hurricane Isaac to be much higher.”

Typhoon Damrey, was forecast to have caused an economic loss in China of around $3.28 billion, however the insured loss from this event is said to be as low as $124m. Another typhoon event in China, typhoon Haiku, impacted the eastern side of the country and caused $2.04 billion of economic losses which translated into $230m of insurance claims. Slightly higher insurance penetration in that case as the event hit a more built up and populous areas, but 10% insurance cover is still very low when compared to western countries.

Showing that some Asian countries have high insurance penetration, a typhoon which hit South Korea, super typhoon Bolaven, caused economic losses of over $177m and that translated into insurance claims of more than $106m. A significantly higher level of penetration of insurance products.

At this time where re/insurers are concerned about the ongoing profitability of their existing business and looking for new opportunities, the lack of insurance penetration in some Asian and developing nations shows that profitable regions will increase their need for re/insurance in years to come. The low insurance penetration seen in typhoon events in China is not sustainable and eventually the Chinese insurance market will have to seek support from global insurers and reinsurers to help them increase insurance penetration dramatically. That could open up new avenues to profit for the markets and innovation in products to meet the needs of a new market will be required. The regions where insurance penetration will grow may also be well suited to parametric or index-linked insurance products and given the size of the exposures the capital markets may be leveraged to help provide capacity.

On hurricane Isaac, the report does not give an accurate estimate of the eventual insured losses, rather it highlights the huge amount of insurance claims (28,000 plus after just a few days) and says the eventual insured loss will be in the single-digit billions but they cannot be sure whether the eventual toll will be greater than hurricane Gustav at $2.3 billion.

You can access the full report on August’s catastrophe events from Aon Benfield here.