Canada in better position than most to close protection gap, collaboration key: Scotti

“Canada is in a better position than many other countries to actually close its protection gap,” Veronica Scotti, president and CEO of Swiss Re Canada, said Wednesday during Swiss Re’s Canadian Insurance Outlook in downtown Toronto.

“Sometimes it takes an outsider to proclaim that things are not as bad as they seem,” said Scotti, who assumed her responsibilities as president and CEO within days of last year’s event. “Canada is in a better position than most other countries to close its protection gap, to narrow the $2.1 billion difference between annual expected insured loss and economic losses,” she told a packed room assembled for the 31^st edition of Swiss Re’s annual breakfast meeting.

Canada has all the descriptors of a mature market, Scotti pointed out, including excellent analytical skills, underwriting acumen and insurers with superior financial strength.

Closing the protection gap, however, will require doing a lot more of what some are already doing. That includes writing comprehensive homeowner flood insurance, improving modelling to allow for better risk selection and pricing, and conveying the importance and value of flood insurance to consumers.

“There is wide acknowledgement that both individuals and various levels of government need to assume responsibility for resilient changes, especially when it comes to the red zone areas, the less than 10% of the exposures that drive cost up exponentially and are borderline uninsurable,” Scotti (pictured below) said with regard to flood risk.

“I am convinced that a robust response from government officials to the red zone issue will invite many more in the industry to offer comprehensive flood protection for personal properties,” she said, and “effectively, eradicate this disgraceful gap that exists.”

Swiss Re is hosting a flood risk event in Toronto next month “to share with a broad interest group more insight we have gathered on flood risk through a new piece of research and continue this multi-party dialogue,” she noted. The event is meant to “show everyone who is participating that there is more that we can do and we need to be at highest urgency,” Scotti said, to close the gap.

Related: Stop the Gap Measures

Also needed to help close the protection gap is “a reversal of ‘not my problem’ thinking,” Scotti emphasized. This is particularly an issue when it comes to earthquake and the undeniable impact that a large-scale quake would have.

“Too many citizens live in denial about the possibility of a big quake; they think it won’t happen to them even though they live in an active seismic zone where the chances that an earthquake as large as magnitude 9.0 occurring along the zone within the next 50 years are about one in 10,” she said.

Only 4% of Montreal’s residential dwellings are insured against earthquake and about 6 in 10 Vancouver dwellings are covered, she told attendees of the event.

“Planning the future of the country with due consideration to such a catastrophic event requires a vision that spans beyond a political term,” Scotti said. There must also be improved understanding of “the broader economic consequences of such a large-scale scenario, so that a whole of society approach can again be put at use.”

Related: Closing protection gap offers opportunity for insurance industry: Swiss Re

“More education is in order. It is on us, our industry, along with disaster experts and governments to convince citizens earthquake insurance is their only viable remedy for rebuilding. A government commitment to a back-up protection scheme, to keep the industry solvent, has to be on the table,” Scotti said.

“Solving the world’s biggest challenges will occur only through collaboration and partnership, of the type that spans beyond the boundaries of one’s own company,” Scotti argued. The goal must be to “find an optimal way to prevent risks and mitigate the consequences of disasters,” she added.

Related: Protection gap remains at an estimated US$1.3 trillion: Swiss Re

“Thankfully, there’s a growing recognition in Canada that in order to achieve this state of resilience – that is, to recover quickly from a disaster – we must work in a co-ordinated fashion,” Scotti said.

Calling this a “whole of society approach,” it must be expressed in three arenas – the physical, the social and the economic – and involve individuals, the government and the insurance industry. “It’s important to work in a co-ordinated way because where our physical resilience ends, our financial resilience must begin, and that financial burden is only growing with inaction and over time,” she cautioned.

“Lately, various levels of government are starting to see that the lack of long-term plan is unsustainable, and has started to make statements around the need to reallocate the burden of a disaster,” she reported. “In other words, we have a clear-eyed view of the challenges we face, and we have the collective resolve – a shared sense of responsibility – to make things better,” she said.

More coverage of Swiss Re’s 2016 Canadian Insurance Outlook

Canada’s p&c industry sees big jump in underwriting income, big drop in nat-cat losses in 2015: IBC