October 6, 2017 by Greg Meckbach, Associate Editor
A lack of insurance coverage for critical infrastructure is one reason for the growing gap between insured and economic losses and 2017 “is going to be the costliest year in world insurance history,” a speaker said Thursday at the 44th Annual Engineering Insurance Conference (AEIC) in Toronto.
Citing Swiss Re figures, Glenn McGillivray, managing director for the Institute for Catastrophic Loss Reduction, noted Thursday that worldwide, there were about US$46 billion in insured losses from natural catastrophes in 2016 and about US$20 billion during the first half of 2017.
That was before Hurricane Harvey made landfall Aug. 25 in Texas, Hurricane Irma made two separate landfalls Sept. 10 in Florida and Hurricane Maria made landfall Sept. 20 in Puerto Rico. As of 11:00 a.m. Friday, Tropical Storm Nate was about 280 kilometres southeast of Cozumel, Mexico.
“Needless to say, it is going to be the costliest year in world insurance history,” McGillivray told about 100 people attending AEIC, produced by the Canadian Boiler & Machinery Underwriters Association.
“On the low end we are talking at least 100 billion in insured losses,” McGillivray said, quoting figures from Fitch Ratings Inc.
Fitch Ratings said Sept. 26 that catastrophe losses for the global insurance and reinsurance sectors “will exceed” US$100 billion in 2017 “and could reach close to” US$190 billion on a pre-tax basis.
“On the high end, Fitch is talking about 190 billion and the year is not over,” added McGillivray, referring to Tropical Storm Nate.
The U.S. National Hurricane Centre reported Friday that due to Tropical Storm Nate, a hurricane warning is in effect from Grand Isle, La. to the Alabama-Florida border, while a storm surge warning is in effect for Morgan City, La. to the Alabama-Florida border.
In a sigma report – Natural catastrophes and man-made disasters in 2016 – Swiss Re said referred to the $121 billion difference between insured and economic losses as the global protection gap.
In 2016 in North America, Swiss Re reported that, from disaster events, there were $30.4 billion in insured losses and $59.5 in economic losses.
Worldwide, “in terms of 10-year rolling averages, insured losses grew by 4.6% between 1991 and 2016, and economic losses by 5.6%,” Swiss Re said.
“That gap is getting wider,” McGillivray said Oct. 5 at AIEC. “There is more and more damage that goes uninsured for various reasons. One of the big drivers is the fact that governments do not really buy insurance for critical infrastructure.”
When there is a catastrophe loss, there can be “a lot of critical infrastructure that needs to be replaced,’ McGillivray added during his AEIC presentation, ICLR’s Natural Hazard Research: The Next 5 Years. “It could be bridges and culverts and even roads, and things of this nature.”
While governments may pay for the losses from critical infrastructure damage, “it’s you and I who pay for the losses, ultimately – the taxpayer,” McGillivary told AEIC attendees.
“We have to start thinking seriously of moving the burden away from the taxpayer and putting it on to the back of the reinsurance industry,” McGillivray said. “I would rather pay a premium than for some of the losses we have been seeing.”
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