Climate change is here. Where to in the insurance industry?
Increased frequency and intensity of natural disasters are direct consequences of the climate change and global warming. Additionally, economic development results in higher risk exposure as it increases the value of both private and public property.
According to Munich Re, in 2017 alone, material losses caused by natural disasters amounted to more than USD 335 billion, of which insurance covered approx. USD 140 billion, meaning that the global insurance gap for natural disasters was in 2017 of about USD 195 billion. What does this mean at local level? A report prepared by Deloitte for the Polish Chamber of Insurance (PIU) this year provides for more than relevant examples.
The 2010 flood caused in Poland direct losses amounting to EUR 3.2 billion, i.e. approx. 1% of GDP. This is the estimated amount of destroyed private and public property as well as agricultural losses caused by flooding of arable land and pastures. The three flood waves recorded throughout the year resulted in 24,000 affected families in 14 provinces, with losses caused by flooding of apartments and houses being estimated at EUR 0.47 billion, an amount which covers not only the costs of renovation or reconstruction of property but also losses in movable property (vehicles, furniture, household appliances, electronic equipment, etc.). If the same flood had taken place in 2018, it would have cost EUR 3.8 billion, which in local currency means by 20.9% more than in 2010.
On the other hand, the drought of 2018 caused losses of about EUR 0.6 billion to the Polish economy, about a quarter of this sum representing the indirect impact on other sectors of the Polish economy. Poland’s GDP decreased in 2018 by 0.13% because of this single phenomenon.
Finally, one should not forget that the above figures apply to a country where about 90% of the agricultural buildings and about 60% of all the other buildings (commercial buildings or single-family residential buildings) are insured. In the Central and Eastern Europe, only a few countries can pride themselves with such high percentages of the insurance coverage (Poland, Czechia, Hungary and to a lesser extend Slovenia and Slovakia). This means that for any of the other countries in the region, the increased frequency and intensity of natural disasters may lead to quite difficult situations, becoming a significant burden on the public budgets and a very serious threat for the future wellbeing of many families.
ICAR 2019 will attempt to analyze the latest progress made in improving insurance coverage of the households in the region, as well as in risk assessment, claims settlement, product design etc. The conference will also emphasize the role that modern digital technologies may play in all these fields of the insurance operations.