Disaster insurers tap under-protected emerging markets

When an April 2015 earthquake ravaged Nepal, killing 9,000 people and destroying half a million homes, insurers say the money paid out to victims amounted to less than a tenth of that received by Americans hit by winter snowstorms earlier in the year. The figures reveal a huge potential market yet to be tapped in the developing and emerging world, major insurers said at an annual four-day gathering of billionaires and the political and business elite in Davos, Switzerland, which wrapped up Saturday.
Illustrating the paucity of insurance taken out in developing and emerging markets, re-insurance group Swiss Re''''s initial estimates indicate that the $6 billion (5.5 billion euros) in wreckage caused by the Nepal quake resulted in payouts of just $160 million. By contrast, the US storms two months earlier caused $2.7 million in damage but resulted in insurance payments amounting to $2.1 billion.
"The difference between the storms in the United States and the earthquake in Nepal is an extreme comparison that really highlights the gap in terms of protection," said Esther Baur, head of global partnerships at Swiss Re, which provides insurance to other insurance firms in case disaster strikes. "But it does not need to be like that," she said. "Insurance is here to put a plan in place beforehand." Worldwide, 70 percent of the damages wrought by natural disasters are not insured, according to Swiss Re, the world''''s second-largest reinsurer after Munich Re.
But expanding into developing markets presents important challenges. When people have fewer resources to subscribe individually to insurance, their governments have to shoulder a greater responsibility, placing public finances at risk. In this context, insurers must turn to new tools, said Baur, who leads a Swiss Re unit dedicated to partnering with governments, non-governmental organisations and other institutions such as the World Bank. In Bangladesh, for example, Swiss Re launched a flood insurance product in co-operation with Oxfam and the local authorities.