Climate change is a top priority for companies and governments around the world, but it will not impact all geographies in the same way, or to the same degree. Guy Carpenter’s new report, Protecting our Planet and the Public Purse, looks into the potential for accentuated global inequalities under climate change and how the protection gap falls across higher and lower income groups, as shown in Figure 13.
The 7.0 earthquake that struck Haiti in 2010, killing up to 230,000 people (two percent of the island’s population), caused between USD 7.8 billion and USD 8.5 billion of damage, equating to approximately 120 percent of the country’s Gross Domestic Product (GDP) (1). This compared extremely unfavorably to New Zealand, where public-private partnerships significantly limited the quantum of losses falling to its government after the powerful earthquake of 2011 (see Table 2). Most studies, particularly those focused on developing countries, consistently call out the devastation catastrophes can have on the long-term development prospects of impacted economies.
Even in developed countries, where some argue that the GDP impact from catastrophes is less of an issue, the insurance gap has huge implications for communities, households and businesses that suffer losses directly. Consider the dynamics experienced after Hurricane Harvey’s landfall in the United States in August 2017, which dropped over 40 inches of rain in the Houston vicinity over three days (2). For homeowners who had purchased flood insurance from the National Flood Insurance Program (NFIP), the average recovery was USD 120,000, more than seventeen times the payouts received by those that suffered loss without flood insurance (the average government assistance payout was only USD 7,000) (3).
The lack of insurance penetration for flooding events in the United States is a huge issue. News sources placed NFIP take-up rates in areas impacted by Harvey at just one in five, or a “gap” of 80 percent, consistent with findings discussed above. There is clearly scope for the private (re)insurance market to take on a greater proportion of U.S. risk than it does presently, given it remains exceptionally well capitalized and is looking for opportunities to deploy capital into new risk pools. Strikingly, only a quarter of Harvey’s total economic loss was covered by the private market.
1. “Haiti Earthquake Facts, Its Damage, and Impact on the Economy”, Kimberly Amadeo, June 2019
2. The fact that Harvey stalled over Houston for over three days is consistent with recent research that highlights the propensity for hurricane forward motion to slow as a result of climate change.