Insurers have role to play in developing countries: Swiss Re

In the wake of the December 26th Asian tsunami disaster, insurers have a role to play in providing financial protection in developing countries, says Swiss Re. In a new report on the tsunami and its consequences, the reinsurer notes that two lessons can be learned: that steps can be taken to mitigate the impact of natural catastrophes, and developing countries need the help insurers can give in understanding and protecting against natural disasters.The tsunami ranks as the third worst disaster on record in human terms, with only the 1970 windstorm/flood in Bangladesh, and the 1976 Tanshan, China earthquake claiming more lives. While the loss in economic terms pales by comparison to the human loss, it is nonetheless significant. The question is, can tsunami risks be understood and mitigated. Swiss Re says traditionally tsunami risks have been assessed via scenario studies, often based on events far in the past where information available is sketchy at best. An unintended consequence of the Asian tsunami is that it will provide current information for understanding future tsunami risks.Swiss Re says it is “regrettable” that insurance take-up rates are so low in many of the affected regions, noting that this situation is of no more benefit to insurers than to the victims. The reinsurer speculates that it is financially feasible for insurers to understand and write cover to adequately cover a major portion of losses from such disasters a feasibility proven by this year’s record Atlantic hurricanes losses, losses which have yet to impact the financial strength ratings of insurers because they are considered to be adequately capitalized and reserved.And while humanitarian outreach in the wake of the tsunami has been massive, insurance has the ability to provide sustainable financial protection for events which might not receive such widespread public attention, the report notes. “Seen in this light, the national economies of the newly industrializing countries are coming to rely more and more on insurance,” the report says. “Precisely in countries where infrastructures have just been built up and the people have earned their first modest levels of wealth, the next stage of development must be dedicated to ensuring that their societies are not thrown back years in their social and economic progress by natural disasters.”