UNDERESTIMATED NAT CAT EXPOSURE (MEDIUM, 1-3 YEARS)
1. The insurance industry can play an important role in helping societies to adapt and become more resilient to natural catastrophes. However, the insurability of natural catastrophe events is based on the insurers‘ ability to control their accumulation potential and identify the probability and severity of the events.
2. Economic losses from climate-related disasters are already substantial and are on the rise. This is due to a greater concentration of people and assets in risk zones as well as an increased frequency and/or intensity of extreme weather due to climate change (e.g. with regard to flood or storm surges).
3. the exposure due to natural catastrophes and consequential impacts may be underestimated in many parts of the world. Known risks such as hillside instability or landslides may change their properties going forward due to climate change. Other risks such as lake tsunamis may have been underestimated inso far as they are very rare; moreover the impacts of non-modelled loss agents and/or secondary effects such as dam breaks following an earthquake, liquefaction or pollution may not be properly considered. However, it is exactly such low frequency, high severity events that have the potential to cause significant losses while being difficult to model.
4. Besides potential immediate implications for direct property losses, nat cat events may also trigger BI/CBI covers – in particular if critical infrastructure is affected. In addition, increased litigation may arise from such events, as various stakeholders might seek to increase their claim value. In the long term, these events imply robust demand for nat cat covers.
SOCIAL UNREST (LOW IMPACT, 1-3 YEARS)
1. Incidents of social unrest have frequently made the headlines in recent years, for instance the Arab Spring, the London riots, the Occupy movement or demonstrations in Greece. They all illustrate that violent social unrest can crop up suddenly and may spread rapidly, especially with the help of social media.
2. In developed countries, the cause of social unrest has its roots in fiscal and demographic developments. The austerity measures implemented in the aftermath of the financial crisis threaten to undermine the tacit agreement between the generations whereby younger people in gainful employment support the retired population through their social security contributions. Combined with an increasing wealth disparity, this has led to the development of social movements and the emergence of social unrest.
3. In developing countries, demographic development and economic progress are more promising, fostering expectations of a fast lift out of poverty. That said, the failure to redress social inequality and the growing wealth gap is also igniting swelling social unrest. In addition, separatist movements in some countries could also lead to social upheaval.
4. Insurance losses under property policies (incl. BI/CBI) should be expected, where cover is granted, in particular in areas with high value concentration. It should be noted, however that in some areas SRCC (strikes, riot, civil commotion) is excluded or covered by government.
RISK HARVEST (LOW IMPACT, 4-10 YEARS)
1. In the face of rapid population growth and declining arable land, food security has become a topic of rising concern around the globe. Ensuring sustainable agricultural production is a key element of dealing with the problem. This requires holistic risk management strategies that help to reduce, mitigate, and cope with various farm risks.
2. Agricultural insurance can make an important contribution and may offer interesting growth potential for the industry, particularly in emerging markets where agricultural insurance penetration is still low. However, agriculture is also a risky business as it is highly dependent on weather conditions. Furthermore, an unfolding pollination crisis due to globally declining bee populations could have unprecedented consequences for the production of fruit and vegetables.
3. High volatility of commodity prices may lead to a more pronounced commodity exposure and to a pricing risk for revenue-based products. insurers could also face unexpected large loss events in the face of climate change which might exceed what is currently reflected in the industry‘s models. Nevertheless, the demand for agricultural insurance is likely to increase with a rise in weather volatility.
(Source: SwissRe)
