Asia long on disasters, short on insurance<\/p>\n
SINGAPORE (Reuters): Asia has huge exposure to natural
\ncatastrophes ranging from tidal waves to earthquakes but little
\nin the way of insurance to cover the damage, industry executives
\nsay.<\/p>\n
In Papua New Guinea, for example, while thousands lie dead or
\ninjured in the devastation of villages wiped out by walls of
\nwater some 30 feet (10 metres) high, most survivors are unlikely
\nto have had any insurance which could help them rebuild their
\nshattered lives.<\/p>\n
"I expect there to be very little involvement for the
\ninsurance industry," Gerhard Berz, head of the Geoscience
\nResearch Group at Munich Reinsurance, told Reuters.<\/p>\n
Industry studies show that situation is far from unusual.<\/p>\n
Some 72 percent of the 22,300 people killed in natural
\ndisasters in 1997 were in Asia, while claims paid by the world's
\ninsurers for the catastrophes in the region were US$858 million
\n-- just 13 percent -- out of a world total of US$6.7 billion.<\/p>\n
In 1996, the figures were 70 percent of deaths and only 8.7
\npercent of the compensation, part of a long historical trend.<\/p>\n
While disturbing, the numbers are not unexpected.<\/p>\n
"There's a combination of two factors really. First that the
\ninsurance penetration is not there, second that the accumulation
\nof risk is not there because insured values are quite low," said
\nDavid Philips, an executive with Swiss Re in Singapore.<\/p>\n
Insurance acts as a barometer of economic development, with
\npenetration correlating closely to per capita income.<\/p>\n
Although the developing world is home to 80 percent of the
\nglobal population, it generates only 25 percent of its wealth.<\/p>\n
In insurance terms, this translates to just 10 percent of
\ncovers being bought in the developing world, says Sigma Swiss
\nRe's research unit.<\/p>\n
Consequently when catastrophe strikes, low life insurance
\npenetration means few payouts to surviving family members.<\/p>\n
As developing nations do not typically have large numbers of
\nhigh spending consumers, non-life insurers face little exposure
\non personal lines business, while low density of factories and
\nhigh-cost property means commercial insurance exposure is tiny.<\/p>\n
Meanwhile, the frequency and severity of natural catastrophes
\nin Asia -- 21 of the world's worst in terms of fatalities have
\noccurred here in the past 25 years -- means what cover is tightly
\nworded, expensive and has high levels of deductibles.<\/p>\n
Asia's geological problem is that it sits on the Ring of Fire,
\nthe name seismologists give to the arc of volcanoes and fault
\nlines stretching around the Pacific Rim.<\/p>\n
"In general, 90 percent of the seismic activity in the world
\nis in the Ring of Fire. There is also high probability of high
\nintensity events," said Berz, whose firm is the world's largest
\nreinsurer and a major underwriter of catastrophe protections.<\/p>\n
The escape clause for the insurance industry is that at this
\nstage in the region's economic development, financial exposures
\nare low, with the exceptions of Australia, Taiwan -- and Japan.<\/p>\n
"Tokyo is really the worldwide leader for seismic exposure.
\nProjections suggest the worst case loss could be as high as US$2
\ntrillion or US$3 trillion, maybe 10 times what we expect in
\nCalifornia, for example," Berz said.<\/p>\n
Even so, the earthquake which struck the Japanese port city of
\nKobe in January 1995, killing 6,000 people and causing US$80
\nbillion in damage, cost a comparatively small US$2.6 billion in
\ninsurance claims.<\/p>\n
However, excluding seismic events like Papua New Guinea's
\ntsunami, caused by an undersea earthquake, does not much improve
\nAsia's risk profile due to high exposure to flood and typhoons.<\/p>\n
Insurers say even if economic development boomed and cover was
\nsnapped up by the vast majority of Asian buyers -- a factor that
\nwould normally drive prices down -- the rise in insured values at
\nrisk from catastrophe would serve to keep prices high.<\/p>\n
"Places like the Philippines are exposed to such a high
\nseverity of natural perils like earthquake, volcanoes, typhoons
\nand floods that the cost of cover would be huge," Berz said.<\/p>\n
In the meantime, the financial exposures have yet to emerge.<\/p>\n
"The developing countries in this region simply haven't
\nentered the insurance world yet. Until they do, the financial
\nimpact of these disasters will remain small," said one European
\ninsurance executive.<\/p>",
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