Gap Between Insured & Economic Losses Offers Business Opportunities: AIR

A huge global gap between disaster-related insured and economic losses presents a growth opportunity for P/C carriers, says a new AIR Worldwide report.

What the catastrophe modeling firm found: the global insured average annual loss comes in at $74 billion. The comparable figure for “economic” losses is more than four-times higher, at more than $307 billion. In between the two, the global average annual loss amount for “insurable” losses is $135.9 billion — nearly twice the insured total, according to AIR.

In addition, AIR estimates that the 1 percent aggregate exceedance probability insured loss (the 100-year return period loss) is approximately $233 billion. The comparable “insurable” loss figure that will be exceeded only 1 percent of the time is $519 billion. Throughout the AIR analysis, insurable losses are those that could arise from all exposures eligible for insurance coverage assuming standard limits and deductibles. Add losses from non-insurable sources — infrastructure and lost economic productivity, for example — and you get “economic” loss estimates.

AIR Worldwide Chief Operating Officer Bill Churney said the big gap between the insured and insurable numbers provides a window of opportunity for the insurance industry for new product development.

“By providing both global insured and insurable loss estimates based on the EP curve, the gap between covered and eligible exposures becomes evident,” suggesting chances for the insurance industry to offer essential protection to vulnerable homes and business owners in addition to avenues of potential business growth, Churney said in prepared remarks.

He added that while the gap is “very pronounced” in Asia, differing numbers remain in the U.S., which continues to have a “significant portion” of uninsured earthquake and flood risks.

Churney said that “economic loss estimates can be used to facilitate public risk financing and the development of regional resiliency plans to help societies better prepare for catastrophes and reduce the ultimate costs.”

AIR Worldwide estimates that just 8 percent of economic losses in Asia are insured. In Europe, the number is just 34 percent. The Latin America region has 13 percent of its economic losses insured. The number jumps to 44 percent for North America (Canada, the United States, Bermuda and Mexico), and hits 37 percent for Oceania.

AIR Worldwide, a Verisk Analytics business, bases its 2015 report on global loss metrics on perils and regions currently modeled by AIR, including new models and updates released during 2015, plus updated industry exposure databases.