WIREDGOV

Research from the world’s specialist insurance market, Lloyd’s of London, warns of an annualised $168 billion insurance deficit that leaves 17 high growth countries severely exposed to the long-term costs of catastrophic events.

The independent study conducted by the Centre for Economics & Business Research (Cebr) and commissioned by Lloyd’s highlights clear risks for countries affected by this shortfall including an unnecessary burden placed on the State and a higher cost of recovery after disasters:

• The State bears an excessive proportion of the cost of natural catastrophes in countries with a low level of insurance. A 1 percentage point increase in a country’s insurance penetration can reduce State liability by as much as 22% . For example, China’s Sichuan Earthquake in 2008 resulted in estimated damages of $125bn and yet just 0.3% was covered by insurance. This left the Chinese State paying for almost all the cost.
• Post-catastrophe recovery costs are lower in countries that have higher levels of insurance. A 1 percentage point increase in insurance penetration delivers a 13% reduction in uninsured losses.
• The pace and extent of global economic development has seen the cost of catastrophes grow by $870bn in real terms since 1980. The level of natural catastrophes in 2011 saw $107bn of insurance claims – the second costliest year overall for the insurance industry and its costliest for natural catastrophe claims on record.

The comprehensive study is the first of its kind and creates a new benchmark measure of ‘underinsurance’. Other key findings include:

• An analysis of five major global disasters showed that only 21% ($115bn) of a total economic loss of $538bn was covered by insurance across the world.
• China insured just 1.4% of losses arising from natural catastrophes between 2004 and 2011, with $208bn in uninsured losses.
• In five of the 17 countries identified as severely underinsured, the average uninsured loss for major catastrophes is at least 80%. The average uninsured cost of catastrophe in China is $18.91bn; in India $1.96bn and in Indonesia $1.45bn.
• Higher levels of insurance correlate positively to economic growth. A 1 percentage point increase in insurance penetration is associated with increased investment of 2% of national GDP.

For more information, please visit the Lloyd’s of London Global Underinsurance site.