Charles Whitmore, Managing Director
These trends are likely to support broader product offerings and greater market stability around which the private sector may close the protection gap in EMEA and in other regions:
Charles Whitmore, Managing Director
Following years of planning by the insurance Industry and negotiation with a wide group of stakeholders including the government, Prudential Regulatory Authority (PRA), the Financial Conduct Authority (FCA) and others, Flood Re launched in April 2016. The overarching aim of the market-based scheme is to ensure better access to more affordable household insurance for those in high flood risk areas.
GC Securities, a division of MMC Securities LLC, a U.S. registered broker-dealer and member FINRA/NFA/SIPC, today announced the placement of a catastrophe bond benefitting the government of Mexico’s Fund for Natural Disasters (FONDEN). The $360,000,000, three-class catastrophe bond is issued by the International Bank for Reconstruction and Development (”World Bank” or “IBRD”), and represents the first listed property and catastrophe bond issued under its Capital-at-Risk notes program.
Charles Whitmore, Managing Director
Organizations throughout EMEA have significantly increased the establishment of strategic initiatives to close the protection gap and improve society’s ability to recover from the devastating impact of natural catastrophe losses. Marsh & McLennan Companies’ Risk & Insurance Services Segment, comprised of Guy Carpenter and Marsh, have developed resources and expertise to help clients in this area.
Charles Whitmore, Managing Director
On a global basis, approximately 70 (1) percent of the economic loss caused by natural catastrophe events is not covered by insurance. This gap, the cost of uninsured events, frequently falls on governments through disaster relief, welfare payments and infrastructure repair and rebuilding. The ultimate cost of these responses causes a strain on public balance sheets and an increase in public debt, ultimately burdening taxpayers. The protection gap is increasing in emerging economies especially where the amount of natural catastrophe economic loss covered by insurance dropped from 25 percent in 2002 to approximately eight percent in 2014.
El Niño Southern Oscillation
The El Niño Southern Oscillation (ENSO) is a phenomenon of shifting sea-surface temperatures (SSTs) in the Tropical East Pacific. The warm phase, or “El Niño,” is related to elevated wind shear in the Tropical Atlantic Basin, which disrupts tropical cyclone formation, usually with a reduction in hurricane counts for the Atlantic Basin. The cool phase, or “La Niña,” is related to elevated hurricane counts in the Atlantic Basin due to reduced wind shear.
As hurricane season begins in the North Atlantic Basin, several agencies have produced seasonal outlooks of 2017 tropical activity including the National Oceanic and Atmospheric Administration (NOAA), The Weather Company (TWC/IBM) and Dr. Phil Klotzbach of Colorado State University (CSU) (1). These seasonal outlooks give a sense of overall expected activity for the basin at large but do not estimate the number of landfalls. These agencies stress the need for readiness for a landfalling hurricane, as with any hurricane season.
Aidan Pope, Managing Director
The Mexican federal government’s risk management strategy exemplifies a modern, resilient disaster preparedness plan, including pre- and post-event approaches and public-private partnerships. Following the 1985 Mexico City earthquake, the Mexican National Civil Protection System (SINAPROC) was created, establishing a multi-level system to integrate stakeholders from the three levels of government, the private and social sectors, academia and scientific organizations. Its purpose was to provide an institutional framework for the improved coordination of emergency response. Its capacities in the areas of risk assessment, early warning, preparedness and disaster risk financing were developed. As SINAPROC evolved, it added risk reduction practices to shift from a reactive to a preventative, holistic and integrated risk management plan.
Aidan Pope, Managing Director
Many recent catastrophe events in the Latin America/Caribbean region provide examples of the protection gap: Only 5 percent of the USD 8 billion economic loss from Haiti’s 2010 earthquake was insured; and the insured portion of the USD 2 to 3 billion economic loss caused by the April 2016 earthquake in Manta, Ecuador, is expected to reach no more than 15 percent. The 2016 earthquake has deeply impacted the local economy and government finances as unemployment increased by approximately 50 percent and the government was compelled to increase sales taxes by two percent to fund national reparation and recovery costs. In general, emerging markets face a much larger protection gap than developed economies:
Aidan Pope, Managing Director
Globally, three of the ten most costly natural disaster events in the last 35 years occurred in total or in part in the Latin America/Caribbean (LAC) region (1); losses from Hurricane Matthew in the Caribbean are still being assessed.
