Typhoon Soudelor, which struck Saipan, Taiwan and China recently killing at least 41 people and wreaking destruction from strong wind and torrential rainfall, has once again highlighted that the protection gap, between economic and insured losses, remains wide.
According to reinsurance broker Aon Benfield’s risk modelling unit Impact Forecasting, typhoon Soudelor is expected to cause at least $3.2 billion of economic losses, with the majority occurring in China. However the proportion of that which will be covered by insurance and reinsurance is miniscule.
Having just started to recover from Soudelor, the region now faces two more typhoons. Typhoon Goni could strike Taiwan at the weekend, while typhoon Atsani is expected to threaten Japan next week. More on these storms later in this piece.
Impact Forecasting reports that the economic losses from typhoon Soudelor are expected to be mostly borne by China, with $3 billion or more expected. However the insurance industry in China and internationally will not suffer as a result, with an early number reported by the China Insurance Regulatory Commission suggesting that just $20m will be covered.
“From an insurance perspective, only a small fraction of the economic losses in China, Taiwan and the Northern Mariana Islands were expected to be covered. Insurance penetration remains quite low in this part of the world,” Impact Forecasting explained.
Soudelor is another example of the lack of insurance penetration in major economies such as China, with such a low percentage of losses likely to be covered it is a clear demonstration of the opportunity in the Chinese market.
It is this opportunity to increase insurance penetration which has led many Chinese investment groups and conglomerates to look to the insurance and reinsurance sector recently as an opportunity to diversify their holdings.
Despite the smaller proportion of economic losses suffered in Taiwan, it has spurred on discussion of the establishment of an agricultural insurance pool in the country, specifically aiming to protect farmers against catastrophic events such as typhoons.
Agricultural insurance penetration is low in Taiwan and the government recognises that a pooled approach to offering a product to protect farmers from weather and catastrophe risks is preferable.
Another reason for the low level of losses in Taiwan is that only 10% of cars in the country have insurance that covers damage from weather events. Given how exposed Taiwan is to storms and severe weather, this is another clear opportunity to increase insurance penetration and narrow the protection gap in the country.
The low level of insurance industry losses in China and Taiwan means little to no losses will be protected by reinsurance. At the expected levels of loss the reinsurance industry will be unlikely to see its capital called on.
With two more typhoons currently spinning in the Pacific, with one in particular forecast to head for Taiwan and possibly China while both will strengthen to near or at super strength, the region may face further economic losses towards the end of this week.
Typhoon Goni is forecast to approach Taiwan at the weekend, although there is still some uncertainty in the storms likely intensity and track. Goni may hit super typhoon status on approach around the middle of the week, as sea surface temperatures are high and low wind shear should support intensification. Right now, typhoon Goni has winds of 135mph, with gusts of 160mph and higher.
The other typhoon in the western Pacific is Atsani. This storm is expected to reach super typhoon strength in the next few days, but will make a slower approach to the west with a more northerly track than Goni.
With winds of 100mph currently and gusts of 120mph or higher, typhoon Atsani is forecast to threaten Japan in a week or so time. How strong typhoon Atsani could be when it nears Japan is uncertain, but it is expected to become a very large storm.
So further threats for Taiwan and China from typhoon Goni at the weekend, with typhoon Atsani expected to threaten Japan next week which could be a larger issue for the insurance and reinsurance industry, given the higher penetration there. The Pacific typhoon season has seen significant activity, with the strong El Nino conditions a factor.
We’ll update you later in the week on the progress of typhoon’s Goni and Atsani.